PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CHAPTER 6 Debtors, creditors and subsidiary ledgers Learning outcome To be able to explain the purpose of subsidiary ledgers and reconcile with control accounts in the general ledger, including procedures for recovery of debts 6-1

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd KEY TERMS Contras Control accounts Reconciliation Subsidiary ledgers Maintaining control over debts 6-2

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd SUBSIDIARY LEDGERS Debtors and creditors are divided into subsidiary ledgers –Localises errors –Divides work and responsibilities Reconciliation with control accounts reveals errors Subsidiary ledgers can be used for other accounts where many items are part of a group 6-3

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd RECONCILIATION TO CONTROL ACCOUNT Reveals errors, such as: –omission of an entry –incorrect posting –mathematical errors Does not reveal posting to incorrect debtor or creditor 6-4

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd 6-5 FLOWCHART OF TRANSACTIONS SOURCE DOCUMENTS DEBTORS SUBSIDIARY LEDGER JOURNALS CREDITORS SUBSIDIARY LEDGER GENERAL LEDGER TRIAL BALANCE

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd POSTING TO CONTROL AND SUBSIDIARY LEDGERS Every entry in control account is supported by same entry in the subsidiary accounts A debit in control account must be supported by a debit in subsidiary account A credit in control account must be supported by a credit in subsidiary account 6-6

DEBTORS LEDGERS 22 Debtors control account PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd Date MayDetailsDebit $Credit $Balance $ 1Balance dr 31Sales and GST dr 31Sales returns and GST dr 31Cash dr 31Bad debts and GST dr 6-7

DEBTORS LEDGERS cont. Subsidiary ledgers Jim 1Balance4 000 dr 4Sales and GST dr 6Cash dr 31Bad debts and GST John 1Balance6 000 dr 7Sales and GST dr 15Cash dr PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd 1Balance2 000 dr 18Sales and GST dr 19 Sales returns and GST dr 25Cash dr Jane 6-8

DEBTORS LEDGERS cont. Reconciliation with the control account as at 31 May NameAmount $ John Jane800 Balance as per the control account PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

CREDITORS LEDGERS 32 Creditors control account Date MayDetailsDebit $Credit $Balance $ 1Balance cr 31Purchases and GST cr Purchases returns and GST cr Cash cr Freight and GST cr 6-10 PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

CREDITORS LEDGERS cont. Subsidiary ledgers Fiona 1Balance8 000cr Purchases and GST cr Purchases returns and GST cr Cash cr Freight and GST cr Francine 1Balance2 000 cr Purchases and GST cr Cash cr Fred 1Balance6 000 cr Purchases and GST cr Cash cr 6-11 PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

NameAmount $ Fiona Francine Fred5 000 Balance as per the control account CREDITORS LEDGERS cont. Reconciliation with the control account as at 31 May 6-12 PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd CONTRAS Same person is a debtor and a creditor Separate accounts are maintained for each Amounts owing can be offset by a general journal entry called a contra entry 6-13

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd RULES OF CONTRAS Credit the debtor and debit the creditor Contras always reduce the balance No GST to consider 6-14

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd ILLUSTRATION 6-15

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd ILLUSTRATION cont. 6-16

PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd MAINTAINING CONTROL OVER DEBTS Set up credit controls Establish payment terms Maintain customer relationships Institute debt recovery procedures 6-17