1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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 $ 1Balance12 000 dr 31Sales and GST5 60017 600 dr 31Sales returns and GST40017 200 dr 31Cash7 20010 000 dr 31Bad debts and GST1 4008 600 dr 6-7

8. DEBTORS LEDGERS cont. Subsidiary ledgers 22.01 Jim 1Balance4 000 dr 4Sales and GST1 4005 400 dr 6Cash4 0001 400 dr 31Bad debts and GST 1 4000 22.02 John 1Balance6 000 dr 7Sales and GST3 6009 600 dr 15Cash1 8007 800 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 GST6002 600 dr 19 Sales returns and GST 4002 200 dr 25Cash1 400800 dr 22.01 Jane 6-8

9. DEBTORS LEDGERS cont. Reconciliation with the control account as at 31 May NameAmount $ 22.02 John7 800 22.03 Jane800 Balance as per the control account8 600 6-9 PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

10. CREDITORS LEDGERS 32 Creditors control account Date MayDetailsDebit $Credit $Balance $ 1Balance16 000 cr 31Purchases and GST7 40023 400 cr Purchases returns and GST 20023 200 cr Cash13 20010 000 cr Freight and GST10010 100 cr 6-10 PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

11. CREDITORS LEDGERS cont. Subsidiary ledgers 32.01 Fiona 1Balance8 000cr Purchases and GST 1 4009 400 cr Purchases returns and GST 2009 200 cr Cash8 2001 000 cr Freight and GST100 1 100 cr 32.02 Francine 1Balance2 000 cr Purchases and GST 4 0006 000 cr Cash2 0004 000 cr 32.01 Fred 1Balance6 000 cr Purchases and GST 20008 000 cr Cash30005 000 cr 6-11 PPTs to accompany Accounting and Bookkeeping Principles and Practice by AAT & David Willis  2011 McGraw-Hill Australia Pty Ltd

12. NameAmount $ 32.01 Fiona1 100 32.02 Francine4 000 32.03 Fred5 000 Balance as per the control account10 100 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

13. 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

14. 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

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

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

17. 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