Recall Documents The first 4 steps Journals

Recall … Documents (The first 4 steps) Journals (The books of PRIME entry) Ledgers Trial Balance

GENERAL LEDGER • Capital (Owner’s equity) • Expenses • Revenues • Assets (except T/R’s) • Liabilities (except T/P’s) SALES LEDGER (Debtors Ledger) T/Rs’ accounts PURCHASES LEDGER (Creditors Ledger) T/Ps’ accounts

Debtors Control A/c (or Sales Ledger Control A/c) Creditors Control A/c (or Purchases Ledger Control A/c) TOTALS of all a/cs relating to T/R’s; TOTALS of all a/cs relating to T/P’s; Summarizes all transactions with T/R’s Summarizes all transactions with T/P’s

A typical T/R’s account. . . Dr John Tan 2001 $ Jan 1 Balance b/d 31 Sales Dishonoured cheques Discount withdrawn Any other charges Feb 1 Balance b/d 2001 Jan 31 Bank / Cash Sales returns Discount allowed Bad debts Balance c/d Cr $

Dr Debtors Control Account 2001 $ Jan 1 Balance b/d 31 Sales Dishonoured cheques Discount withdrawn Any other charges 2001 Jan 31 Bank / Cash Sales returns Discount allowed Bad debts w/o Balance c/d Feb 1 Balance b/d TOTALS Cr $

A typical T/P’s account. . . Dr 2001 Jan 31 Bank / Cash Purchases returns Discount received Balance c/d ABC Pte Ltd $ xx xx 2001 Jan 1 Balance b/d 31 Purchases Carriage inwards Any other charges Feb 1 Balance b/d Cr $ xx xx

Dr Creditors Control Account 2001 Jan 31 Bank / Cash Purchases returns Discount received Balance c/d 2001 Jan 1 Balance b/d 31 Purchases Carriage inwards Any other charges Feb 1 Balance b/d Cr

Even though the Control Accounts reflect the total of each item, entries in the Control Accounts are NOT taken from the individual T/R’s or T/P’s accounts.

That is, we should NOT be under impression that. . . because therefore Debtor A Sales 500 Debtor B Sales 800 Debtor C Sales 400 Debtors Control Account Sales 1, 700

But rather. . . The entries in the Control Accounts are made up of TOTALs obtained from BOOKS OF PRIME ENTRY What are the books of prime entry?

For example, Date Sales Journal Sales Ledger Amt $ Debtor A 500 Debtor B 800 Debtor C 400 Sales Account 1, 700 Debtor A Sales 500 Debtor B Sales 800 Debtor C Debtors Control Account Sales 1, 700 Sales 400

Debtors Control Account

Debtors Control Account

Creditors Control Account

Creditors Control Account

Sometimes, a CUSTOMER of a business also happens to be a SUPPLIER. For example, A business selling cloth also buys Singapore flags from a flag manufacturer. Can you think of other examples?

For example, Silky Co. sold $500 worth of cloth to Singaflag Pte Ltd in July 2002. During the same month, Silky Co. also bought $200 worth of Singapore flags from Singaflag Pte Ltd. How should the accounts be presented in Silky Co. ’s books?

SALES LEDGER Singaflag Pte Ltd $ 500 Transferred from Purchases Ledger Balance c/d 500 Sales Balance b/d $ 200 300 500 300 PURCHASES LEDGER Singaflag Pte Ltd Transferred to Sales Ledger $ 200 Purchases $ 200

1. The SMALLER amount is transferred. 2. The DEBTOR is always CREDITED and the CREDITOR is always DEBITED.

Silky Co. sold $500 worth of cloth to Singaflag Pte Ltd in July 2002. During the same month, Silky Co. also bought $200 worth of Singapore flags from Singaflag Pte Ltd. How should the accounts be presented in Silky Co. ’s books? What about Singaflag Pte Ltd’s books?

SALES LEDGER Silky Co. Sales $ 200 Transferred to Purchases Ledger PURCHASES LEDGER Silky Co. $ Transferred from Purchases Sales Ledger 200 Balance c/d 300 500 Balance b/d $ 200 $ 500 300

Transfers or Contras always appear on the CREDIT side of the Debtors Control Account and DEBIT side of the Creditors Control Account Dr Debtors Control Account Cr Transfers or Contras Dr Creditors Control Account Transfers or Contras Cr

At times, some debtors may have small credit balances and creditors may have small debit balances. When will such situations happen?

For example, Some debtors returning empty containers / defective goods for which they have been charged. Or, some debtors may have been overcharged. When there is no or insufficient debit balances to offset this credit items, these debtors will have credit balances for the time being.

Eg. Dr A debtor, C Tan, has settled his account of $500. Subsequently, he returns empty containers to the value of $10. C Tan 2002 $ Jan 1 Balance 500 31 Balance c/d 10 510 2002 Jan 10 Cash 25 Returns Cr $ 500 10 510 Feb 1 Balance b/d 10