BAAF 202

CHAPTER 5

INTRODUCTION TO FINANCIAL ACCOUNTING

ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE

SCHOOL OF ACCOUNTING AND FINANCEFACULTY OF BUSINESS AND MANAGEMENT

PREPARED BY:DZULKARNAIN DAHALAN

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CHAPTER 5: ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLES

LEARNING OUTCOMES

At the end of this chapter, students will be able to understand : Cash Sales,Credit Sales and Credit Cards payments Making Entries in the Sales Day Book and Posting Credit Sales to the

Sales Ledger Trade Discounts Making Entries in the Purchases Day book and Posting Credit Purchases

to the Purchases Ledger Return Inwards and Credit Notes Return Inwards Day Book Return Outwards and Debit Notes Return Outwards Day Book Preparing and balancing Individual Creditors’ and Debtor’s Accounts as

well as Respective Control Accounts Value Added Tax

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CHAPTER 5: ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLES

Journal is the memorandum or the first entry in recording process of business transactions of an accounting financial year.

Journal also known as a book of original entry Used as a basis for recording and to be analyzed before any

transactions is recorded in the ledger It traces the incomplete recordings Books of Original Entry can be classified as Daily Books that consists

of:i. Cash Book – only for cash transaction entries

ii. Day Book / Journal – for credit transactions entries. It can be classified into 2:

a) Special Journals – Sales Journal, Purchase Journal, Return Outwards Journal, Return Inward Journal

b) General Journals - Opening Capital, Sales/Purchase of fix assets, Bad Debts, Drawing by Owner,

Adjustment on Ledgers, capital addition.

JOURNAL

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PURCHASE JOURNAL

It record all the credit purchasesEg.: In 20X2,

Jan 1 – Bought goods from Suzie RM600 creditJan 4 – Received invoice from Razali for RM800Jan 9 – Bought goods from Suzie RM200 credit

Date Details Total20X2 RM1-Jan Suzie 600

4 Razali 8009 Suzie 200

31 Purchase Account 1600

Purchase Journal

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SALES JOURNAL

It records all the credit sales

Eg.: In 20X2,Feb 2 – Sold items to Dora RM720creditFeb 6 – Sent invoice to Juliana for RM500Feb 12 – Sold goods to Dora RM120 credit

Date Details Total20X2 RM2-Feb Dora 720

6 Juliana 50012 Dora 12028 Sales Account 1340

Sales Journal

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RETURN OUTWARDS JOURNAL

It records:Goods returns to creditorsAllowance to debtors

Eg.: .: In 20X2,Jan 8 – Credit Note received from Razali for good returns RM100Feb 6 – return goods to Suzie RM60

Date Details Total20X2 RM8-Jan Razali 100

12 Suzie 60

31 Return Outwards Acc 160

Return Outwards Journal

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RETURN INWARDS JOURNAL

It records:Goods received from debtors Allowance from creditor

Eg.: .: In 20X2,Feb 10 – Credit Note mailed to Juliana RM80Feb 16 – Dora returned goods RM30

Date Details Total20X2 RM

10-Feb Juliana 8016 Dora 3028 Return Inwards Acc 110

Return Inwards Journal

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GENERAL DAY BOOKS/ GENERAL JOURNAL

When there is a transaction that cannot be categorized into Cash Book & Special Journal, then it will fall into General Journal.

General Journal must have: Date, Amount of Transactions and Explanations

Example 1: Opening Capital 1 July 20X2, Lily has assets and liabilities of:

Furniture RM18,000 Debtor: Reza RM3,200

Cash RM500 Creditor: Syarikat Lim RM2,800

Stock RM1,500 Bank Loan RM5,000

Date Details Folio Debit (RM) Credit (RM)1-Jul-02 Furniture 18,000

Cash 500 Stock 1,500 Debtor: Reza 3,200 Bank Loan 5,000

Creditor: Sykt Lim 2,800 Capital *15,400

23,200 23,200 * Capital = Asset - Liabil ity = RM23,200-RM7,800 = RM15,400

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CHAPTER 5: ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLES

Cont…

Example 2 : Buy or Sales Fixed Assets on Credit Jan 3 – Bought cabinet RM600 from Sykt Zi Wei on credit Jan 9 – Sold van RM15,000 on credit to Usaha Jonathan

Date Details Debit (RM) Credit (RM)3-Jan Furniture Account 600

Syarikat Zi Wei 600 (bought cabinet on credit)

9-Jan Usaha Jonathan 15,000 Van Account 15,000 (sold van on credit)

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The entries made from the books of original entry is then summarized and the summary info is entered, using double entry, to accounts kept in the various ledgers of the business.

Types of ledgers: Sales Ledger – for customers’ personal acc Purchase Ledger – for suppliers’ personal acc General ledger – for the remaining double entry accts that related

to expenses, fixed assets and capital. Balancing Ledger Accounts: End of each accounting period the figures in each acc are

examined to summarize the situation they present. To find out how much our customers owe us for goods we have

sold to them

LEDGER

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CHAPTER 5: ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLES

LEDGER..cont..

5 steps of Balancing Ledger:

i. Add up both sides to find out their totalsi. Debit (RM2,400 + RM1,000) = 3,400

ii. Credit RM500

ii. Deduct the smaller total from the larger total to find the balance

-Diff (RM3,400 – 500)=RM2,900

iii. Now enter the balance on the side with the smallest total

iv. Enter total level with each other

v. Now enter the balance on the line below the total or the opposite side to the balance shown above the total.

20X9 RM 20X9 RM3-Oct Sales 2,400 8-Oct Return Inwards 500

15 Sales 1,000 31 Balance c/d 2,900 3,400 3,400

1-Nov Balance b/d 2,900

Jenny Account (Debtor)

iii

iviv

v

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Value Added Tax (VAT) is a tax charged on the supply of most goods and services in the United Kingdom.Value Added Tax is administered in the UK by HM Revenue and Custom.

The concept underlying VAT is that tax paid by ultimate consumer of the goods or services but that everyone in the supply chain must account for and settle up the net amount of VAT they have received in the VAT tax period ,usually 3 months.

E.g: Trader A sells goods to Jones for £100 + VAT of 20%:

£

The sales invoice is for : Price 100

+VAT 20% 20

= Total price 120

Trader A will then pay £ 20 they have collected to the Revenue & Customs

Value Added Tax

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A person who owes the business money is known as debtor and described in the statement of financial position as an account receivable

A person to whom money is owned for goods is known as creditor

and described in the statement of financial position as account payable

Account Receivables and Account Payable Definition

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Account Receivables and Account Payable Definition

B.BlakeStatement of financial position as at 10 May 2011

£AssetsShop 32,000.00 Inventory 6,400.00 Account Receivable 600.00 Cash at bank 28,000.00

67,000.00 Less: Account payable (7,000.00)

60,000.00 Capital 60,000.00