Accounting Financial Analysis 1 Lecture 4 Debtors Creditors

Accounting & Financial Analysis 1 Lecture 4 Debtors & Creditors Subsidiary Ledgers br

Debtors Ledger Trade debtors originate from the Sales Journal n Every sale made on credit will either create a new debtor or increase the amount owing by an existing debtor n Previously, we said that the monthly total of the sales journal is posted to the General Ledger. n br

Monthly total of the sales journal n The entry would be: n n CR Sales a/c (Nominal ledger) CR GST payable a/c n (Proprietary ledger) n n DR Accounts receivable (Trade Debtors, Debtors control a/c) (Proprietary ledger) $75, 570 n n $68, 700 $6, 870 Being credit sales for the month of ……. . br

Amount posted to the Accounts Receivable will be: § § § The total of all the Credit Sales made during the month to all of the customers. The total of the Sales Returns for the month by all of the customers. The total of Cash Received from Debtor payments. br

Why use subsidiary ledgers? n n The general ledger will only show a total figure of how much is owed to the business it will not give details as to WHO owes the money nor HOW MUCH each customer owes. This information is most important to a business as it needs to collect money owing as quickly as possible. In order to have this information available there needs to be a Debtors Subsidiary Ledger for amounts owing to the business and a Creditors Subsidiary Ledger for amounts owing to the customers. br

Controlling Debtors n n n n n A business needs to monitor debtor payments using some of the following techniques: Get a credit check by using a reputable credit agency Get 3 references on the customer from their current suppliers Clearly indicating the credit terms being offered Enforcing credit terms as agreed Ensure that all invoices and statements are accurate and delivered promptly. Stop service to any delinquent payer Offer discount for early settlement Review debtors regularly to confirm that the credit terms are being observed. br

Outstanding accounts Check that the invoice sent to the customer was correct and that the customer received the goods. (delivery note signed by customer) n Contact the customer by telephone followed by a letter demanding payment. n If payment is still not received contact your debt collecting agency or lawyer to follow up. n br

DEBTORS SUBSIDIARY LEDGER The debtors subsidiary ledger will have an account opened for each individual debtor n Each credit sales invoice (after being entered into the SALES JOURNAL) will also be entered into the appropriate debtors account in the subsidiary ledger as will n other journal transactions that effect the Accounts Receivables. n br

DEBTORS SUBSIDIARY LEDGER (2) The journals that have a direct influence on Accounts Receivable (Debtors) are: n The Sales journal n The Sales returns journal n The Cash receipts journal n br

Example: SALES JOURNAL br

Example: Sales returns journal br

Example: Cash Receipts Journal Credit br Debit

DEBTORS SUBSIDIARY LEDGER br

DEBTORS SCHEDULE as at 28 th February 2006 n n John Smith Monica Borg Ben Toby Total $583 $0 $660 $1, 243 Current 30 days $583 $231 $814 $429 br 60 days

GENERAL LEDGER Accounts receivable (Trade Debtors Control account) br

CREDITORS SUBSIDIARY LEDGER The creditors subsidiary ledger will have an account opened for each individual creditor and n each credit purchase invoice after being entered into the PURCHASES JOURNAL will also be entered into the appropriate creditors account in the subsidiary ledger, as will n other journal transactions that effect the Accounts Payables. n br

The journals that have a direct influence on Accounts Payables are: The Purchase journal n The Purchase returns journal n The Cash Payments journal n br

Example: Purchases journal br

Example: Purchases returns journal br

Example: Cash Payments Journal Debit br Credit

CREDITORS SUBSIDIARY LEDGER br

CREDITORS SCHEDULE as at 28 th February 2006 Total Current 30 days 60 days Supplies Ltd $2, 541 $1, 562 Co-Op Ltd $2, 464 Easton Ltd $1, 215 $858 Uncle Toby $484 Total $6, 704 $5, 368 $979 $357 $1, 336 br

GENERAL LEDGER Accounts payable (Trade Creditors Control account) br

Have a go! n CLASS EXERCISE 3 a Debtors & Creditors – handed out yesterday br