CHAPTER 16

The payables ledger

Contents

Personal accounts for suppliers Recording transactions in the payables

ledger Payments to suppliers The age analysis of payables and other

reports Contra entries with the receivables

ledger

The need for personal accounts A supplier might telephone, asking for payment of

the full balance due to him It is common for businesses to receive statements

of account from their suppliers monthly. The business needs to maintain its own records to check that the supplier's statement is correct.

The business needs to maintain a complete record of the items making up the balance it owes so that it can make appropriate payments on an appropriate regular basis to suppliers.

The business will not usually want to pay each of a supplier's invoices separately

The payables ledger

The personal accounts showing how much is owed to each credit supplier of the business are contained in the purchase ledger, or payables ledger.

Purchase returnsDiscounts received

Trade accounts payable

Trade accounts payable consist of those liabilities which are related to the trade of the business.

Other payables will not normally be recorded in the payables ledger and the balances owed should instead be recorded in: Liabilities to pay wages and salaries Taxes

Discussion

(a) What is the status of a trade account payable in the accounts of a business?(i) An asset(ii) A liability(iii) An expense(iv) An item of revenue

Discussion

(i) Depreciation provision

(ii) Personal accounts for suppliers of subcomponents

(iii) Taxation authorities

(iv) Sales tax authorities

(v) Suppliers of raw materials

(vi) Bank overdraft

(vii) Long-term bank loan

(viii) Share premium

(ix) Telephone expenses

(x) Drawings

(xi) Proprietor's capital

(b) Which are not normally found in a payables ledger of trade accounts payable?

Answer: 2 5 9 only

Recording transactions

Which is NOT part of double

entry

How to check

posting correctness?

Discounts received

Remember: ‘Memorandum' discounts received column in the cash book

Recording?

Question

Cosmo runs a picture framing business. You are given the following information about his transactions during January 20X6.

1. There is a balance of $1,200 in the bank. This is also reflected in the cash book as a debit balance b/f

2. On 10 January 20X6 Cosmo purchased $400 worth of glass from Quentin Co. The terms of the sale included a clause that he would receive a 10% discount if he paid within 3 weeks.

3. On 15 January 20X6 Cosmo purchased paper, card and frames worth $2,000 from W Honor Soper. He would receive a discount of $200 if settling by 31 January 20X6.

4. Cosmo take advantage of the cash discounts offered and pays both suppliers before the 31 January 20X6.

TaskPrepare(a) the journal entries to reflect the above

transactions in the cash book and the trade payables control account.

(b) Cosmo's cash book for the period 1 January to 31 January 20X6 showing the discount in memorandum column.

(c) Cosmo's trade payables control account showing the postings for January.

Answer

Supplier statement reconciliations

Answer

The common items have been ticked off on the statement and payables ledger above

The balance brought forward at 30.4.X1 consists of three invoices

Invoices 33004 and 33060 were paid on 4 May and 34114 was part of the payment on 28 May.

Answer

Pickett's statement does not show the payment of $117.77 made on 28 May

The statement also shows an invoice 34392 dated 21 May, which is not in the payables ledger

The reasons for reconciling items

Checks over payments

The age analysis of payables The age analysis of payables will consist

of a listing of payables' balances analysed between different 'ages' of debt represented by different items in the balance, measured in months

Contra entries with the receivables ledger

Contra entries 'net off' amounts due to and from the same parties in the payables ledger and receivables ledger respectively.

Example

If A owes B $200 for purchases and B owes A $350 for credit sales, the net effect is that B owes A $150

Books of A: Payables ledger – B – for $200 Receivables ledger – B – for $350

Netting off (made in contra)

Question

You are the payables ledger clerk for a company providing financial services, and the date is 28 August 20X7. The company operates a non-integrated payables ledger system.

The payables ledger account for a supplier called Kernels shows the following.

The following facts came to light.

(a) Kernels' invoice 21201 for $97.40, dated 23 August 20X7, was misposted to the account of MPV in the payables ledger.

(b) The cash payment of $400.00 made on 21 August 20X7 relates to another supplier, ASR.

(c) Item C91004 dated 24 August 20X7 is in fact a credit note.

(d) Invoice 20642 has been posted to the account twice.

(e) Kernels has a balance of $37.50 in the receivables ledger, which is to be set off against its balance in the payables ledger.

Draw up journal entries for the above items and write up the Kernels' account accordingly, posting the journal entries to the account.

Answer

Answer

Answer

Quiz

1 What does the payables ledger contain?2 What are trade payables?3 Give two examples of 'other payables'.4 What does the age analysis of payables

do?5 What does settlement 'in contra' mean?

Answer

1 The personal accounts showing how much is owed to each credit supplier of the business.

2 Liabilities relating to the trade of the business, eg purchases of goods for re-sale.

3 (i) Wages and salaries(ii) Sales tax

4 Lists payables' balances analysed between different 'ages' of debt.

5 An amount due from a customer in the receivables ledger is set off against a target amount owed to the same person in the payables ledger, or vice versa.

QB 35

A supplier sends you a statement showing a balance outstanding of $14,350. Your own records show a balance outstanding of $14,500.

The reason for this difference could be thatA The supplier sent an invoice for $150 which you have not yet

receivedB The supplier has allowed you $150 cash discount which you

had omitted to enter in your ledgerC You have paid the supplier $150 which he has not yet

accounted forD You have returned goods worth $159 which the supplier has

not yet accounted for

Answer: B