A summary of LU7-9 covering the following sections:
- Debtors (accounts receivable) and Creditors (accounts payable)
- Salaries and Wages
- Year-end Procedures
Learning Unit 7: Debtors (accounts receivable) and Creditors (accounts payable)
7.1 The need for individual accounts:
So far, we have shown how all transactions relating to debtors culminate lump sum postings to the
debtors control account in the general ledger and how all transactions relating to creditors eventually end
up in the creditors control account in the general ledger. The debtors control account provides us with an
exact figure of how much all debtors owe us in total. Similarly, the creditors control account gives us a
value of how much we owe all creditors in total.
These collections of accounts summarizing the transactions pertaining to all individual debtors and
creditors are called the debtors and creditors ledgers respectively. Collectively they are known as the
subsidiary ledgers.
7.2 The structure of the subsidiary ledgers for debtors and creditors:
Thus, far we have referred to an account as being the ‘T-account’ in the general ledger – a structure with
a debit and credit side. The subsidiary ledgers do not have a debit and credit side but are constructed
with a ‘statement’ structure with amount columns for the debits, credits and the ‘running’ balance. Both
the debtors and creditors ledger are continuously updated from month to month.
7.2.1 Individual debtors’ accounts:
The debtors ledger consists of a series of individual debtors’ accounts with a completely different
structure to the accounts in the general ledger. The following recommended account structure can be
used to record transactions with individual debtors:
1 – Records the day, month and year of the transaction.
2 – Coding system to represent the various types of transactions pertaining to debtor. An example of a
coding system is as follows.
Code no. 1: Credit sales according to credit invoices.
Code no. 2: Increases in a previously issued credit invoice by means of a debit note.
Code no. 3: Returns/Rebates according to duplicate credit notes.
Code no. 4: Cash receipts from debtors (duplicate receipts).
Code no. 5: Discounts granted on prompt settlements.
Code no. 6: R/D cheques (when cheques received from debtors are dishonored by the bank).
Code no. 7: Settlement discounts cancelled on R/D cheques.
Code no. 8: interest charged on overdue accounts.
Code no. 9: Credit losses (Bad debts).
3 – The document number for the transaction (write out the full name).
4 – Journal reference e.g. DJ8.
5 – The debit column records transactions that increases the amount owing to our business by the debtor.
, 6 – The credit column records transaction that decreases the amount owing to our business by the
debtor.
7 – The balance column shows the amount owing by the debtor after each transaction.
7.2.2 Individual creditors’ accounts:
As with the debtors ledger, the creditors ledger consists of a series of individual creditors’ accounts with a
completely different structure to the accounts in the general ledger. The following recommended account
structure can be used to keep record transactions with individual creditors:
1 – This is used to record the day, month and year of the transaction.
2 – Coding system (like debtors) used to represent the various types of transactions. An example of a
coding system is as follows:
Code no.1: Credit purchases according to original credit invoices.
Code no.2: Increases in a previously received credit invoice by means of an original credit note
received.
Code no.3: Returns/Rebates according to original credit notes.
Code no.4: Cash payments to creditors (cheque counterfoils).
Code no.5: Discounts received on prompt settlements.
Code no.6: Interest charged by creditors on our overdue accounts.
3 – The document number for the transaction (write the full document number).
4 – The journal reference e.g. CJ8
5 – The debit column records transactions that decrease the amount owing to our creditors.
6 – The credit column records transactions that increase the amount owing to our creditors.
7 – The balance column shows the amount owing to our creditors after each transaction.
N.B: YOU DO NOT NEED TO LEARN THE CODES OFF BY HEART, THEY ARE GIVEN TO YOU IN A
TEST/EXAM.
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