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Credit Sales and Purchases
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Lesson 1Revision DEAD CLIC?
Double entry for buying £30 stationery using a business debit card. Double entry for paying £450 into the bank from cash sales. Classify these types of accounts: wages, rental income, sales, money taken out by the owner, stationery, purchases.
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Lesson 2 Revision Calculate the VAT added on to £130.
Calculate the VAT inclusive of £573. A company offers a 3% cash discount and a bulk discount of 10% on orders over £250 it receives an order of 65 items at £3.95 each? Calculate the total cost before discount, the discount, cost after discount, VAT at current rate, total cost.
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Aims of the Session Accounting for credit sales.
Accounting for sales returns. Accounting for credit purchases. Accounting for purchase returns.
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Terminology Used General/nominal/main ledger – contains all the accounts. VAT Account – a liability entry, what we owe. Sales Account – an income account contains the net value of the sales. Sales Ledger Control Account – an asset account, contains the gross of the sales. Sales Ledgers – named accounts contained in the SLCA contains the gross of the individual customers.
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Accounting for Sales Financial document is generated – sales invoice
Entry into book of prime entry Sales Day Book. Transferred to the ledger accounts Sales Account, VAT Account and Sales Ledger Control Account. Entry into the subsidiary ledgers – customer accounts.
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Sales Day Book Not part of the double entry system.
First place that a financial transaction is recorded. Used to give totals to go into the ledger accounts. Reasons for using Day Books? Double check Fewer transactions to be entered into the double entry system Work can be divided up
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Sales Day Book Extract Sales Day Book Date Details Invoice Number
Cross reference to ledger Specific to customer - cross reference Sales Day Book SDB21 Date Details Invoice Number Account Code Total VAT * Net 5 Jan Doyle & Co 901 SL058 144 24 120 8 Jan Sparkes & Sons Ltd 902 SL127 192 32 160 13 Jan T Young 903 SL179 96 16 80 15 Jan 904 31 Jan Totals 576 480 GL1200 GL2200 GL4100 Specific to order Cross reference to ledger * VAT at 20%
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Day Book is Totalled At regular intervals, daily, weekly, monthly.
Entered in Sales Ledgers – specific to customer, not double entry. Entered into Sales Ledger Control Account debit, the Sales Account and the VAT Account double entry credit.
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Double Entry for Credit Sales
From the previous extract Sales Ledger Control Account – GL1200 debts the business owns an asset Sales Account – GL4100 an income account Dr Cr Dr Cr SDB £576 SDB21 £480 VAT Account – GL2200 a liability entry Dr Cr Doyle & Co SL058 – Subsidiary Ledger debts the business owns an asset SDB £96 Dr Cr SDB £144
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Sales Day Book Exercises
Write up the Sales Day Book for the following credit sales transactions: Sold goods of £40 + VAT to Lillyvick’s, account code SL001, invoice number 403. Sold goods of £60 including VAT to Lewsome’s, account code SL002, invoice number 404. Sold goods of £76 + VAT to Tom Pinch, account code SL003, invoice number 405.
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Transfer these to the double entry system and the relevant subsidiary accounts.
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The opposite of accounting for a sale.
Sales Returns Accounted for in the Sales Returns Day Book. Then totalled and entered into the SLCA as a credit. VAT account is debited. Sales Returns Account is debited. Subsidiary Sales Ledger is credited. The opposite of accounting for a sale.
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Sales Returns Day Book Extract
Cross reference to ledger Specific to customer - cross reference Sales Return Day Book SRDB2 Date Details Credit Note Number Account Code Total VAT * Net 18 Jan Sparkes & Sons Ltd 702 SL127 144 24 120 31 Jan Totals GL1200 GL2200 GL4110 Specific to order Cross reference to ledger * VAT at 20%
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Double Entry for Sales Returns
From the previous extract Sales Ledger Control Account – GL1200 Sales Returns Account – GL4110 Dr Cr Dr Cr SRDB2 £144 SRDB2 £120 VAT Account – GL2200 Dr Cr SRDB2 £24 Sparkes & Son SL127 Dr Cr SRDB £144
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The Analysed Sales Day Book
Splits sales into different types, for example buttons and bows. Sales Day Book SDB3 Date Details Invoice number Account code Total VAT NET Buttons Bows 9 Aug Ms Pocket 1846 SL907 240 40 200 100 16 Aug Mr Stiggins 1847 SL915 144 20 124 Totals 384 60 324 224 GL1200 GL2200 GL4160 GL4170 Entry into the double entry system as previous, but the sales accounts will be split into Buttons and Bows.
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Double Entry for Credit Sales (Analysed)
From the previous extract Sales Account Buttons GL4160 Dr Cr Sales Ledger Control Account GL1200 Dr Cr SDB3 £100 SDB3 £240 Sales Account Bows GL4170 Cr Dr SBD3 £100 Ms Pocket SL907 Dr Cr VAT Account GL2200 SDB £240 Dr Cr SDB3 £40
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Terminology Used General/nominal/main ledger – contains all the accounts. VAT Account – a asset entry, what is owed back to the business. Purchases Account – an expense account contains the net value of the sales. Purchase Ledger Control Account – an liability account, contains the gross of the purchases . Purchase Ledgers – named accounts contained in the PLCA contains the gross of the individual suppliers.
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Accounting for Purchases
Financial document is received– an invoice Entry into book of prime entry Purchases Day Book. Transferred to the ledger accounts Purchases Account, Purchases Ledger Control Account, VAT Account. Entry into the subsidiary ledgers – supplier accounts.
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Purchases Day Book Looks familiar?
Not part of the double entry system. First place that a financial transaction is recorded. Used to give totals to go into the ledger accounts. Reasons for using Day Books? Double check. Fewer transactions to be entered into the double entry system. Work can be divided up. Looks familiar?
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Purchases Day Book Extract
Cross reference to ledger Specific to supplier - cross reference Purchases Day Book PDB51 Date Details Invoice Number Account Code Total VAT * Net 5 Jan P Bond 1234 PL058 96 16 80 8 Jan D Webster A373 PL730 144 24 120 13 Jan 1239 48 8 40 15 Jan Sanders & Sons 5691 PL495 192 32 160 31 Jan Totals 480 400 GL2350 GL2200 GL5100 Specific to order Cross reference to ledger * VAT at 20%
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Day Book is Totalled At regular intervals, daily, weekly, monthly.
Entered in Purchases Ledgers – specific to supplier, not double entry. Entered into Purchases Ledger Control Account credit, the Purchases Account and the VAT Account debit.
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Double Entry for Credit Purchases
From the previous extract Purchases Ledger Control Account – GL2350 liabilities the business owes. Purchases Account – GL5100 an expense account Dr Cr Dr Cr PDB £144 PDB21 £120 VAT Account – GL2200 an asset entry Dr Cr P Bond PL058 – Subsidiary Ledger liabilities the business owes. PBD £24 Dr Cr PDB £96 PDB £48
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Purchases Day Book Exercises
Write up the Purchases Day Book for the following credit purchase transactions: Purchased goods of £95 + VAT from Quinions, account code PL001, invoice number 403. Purchased goods of £78 including VAT from Levison’s, account code PL002, invoice number S467. Purchased goods of £76 + VAT to May’s, account code PL003, invoice number IN906.
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Transfer these to the double entry system and the relevant subsidiary accounts.
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The opposite of accounting for a purchase.
Purchase Returns Accounted for in the Purchases Returns Day Book. Then totalled and entered into the PLCA as a debit. VAT account is credited. Purchase Returns Account is credited. Subsidiary Purchase Ledger is debited. The opposite of accounting for a purchase.
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Purchase Returns Day Book Extract
Cross reference to ledger Specific to supplier - cross reference Purchase Return Day Book PRDB1 Date Details Credit Note Number Account Code Total VAT * Net 20 Jan D Webster 123 PL730 48 8 40 31 Jan Totals GL2350 GL2200 GL5110 Specific to order Cross reference to ledger * VAT at 20%
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Double Entry for Purchase Returns
From the previous extract Purchase Ledger Control Account – GL2350 Purchase Returns Account – GL5110 Dr Cr Dr Cr PRDB1 £144 PRDB1 £120 VAT Account – GL2200 Dr Cr PRDB1 £24 D Webster PL730 Dr Cr PRDB £144
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The Analysed Purchases Day Book
Splits sales into different types, for example buttons and lace. Purchases Day Book PDB3 Date Details Invoice number Account code Total VAT NET Bobbins Lace 9 Aug The Nicklebies 1846 PL907 240 40 200 100 16 Aug Rigauds 1847 PL915 144 20 124 Totals 384 60 324 224 GL2350 GL2200 GL5160 GL5190 Entry into the double entry system as previous, but the purchases accounts will be split into Bobbins and Lace.
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Double Entry for Credit Purchases (Analysed)
From the previous extract Purchases Account Bobbins GL5160 Dr Cr Purchases Ledger Control Account GL2350 Dr Cr PDB3 £100 PDB3 £240 Purchases Account Lace GL5190 Cr Dr PDB3 £100 The Nicklebies SL907 Dr Cr VAT Account GL2200 PDB £240 Dr Cr PDB3 £40
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Questions
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Recap Credit Sales Enter into the: Sales day book
Sales day book is totalled Single entry made in customer’s sales ledger Doubles entries made in SLCA (dr) & Sales account & VAT account (cr). Sales Returns Sales returns day book Sales returns day book is totalled Doubles entries made in SLCA (cr) & sales returns account & VAT account (dr). Credit Purchases Purchases day book Purchases day book is totalled Single entry made in suppliers’ purchase ledger Doubles entries made in PLCA (cr) & purchases account & VAT account (dr). Purchase Returns Purchase returns day book Purchase returns day book is totalled Doubles entries made in PLCA (dr) & purchases returns account & VAT account (cr).
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Look Forward To: Discount allowed & received day books.
The 3 column cash book The analysed cash book The petty cash book.
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Exercises
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