Post on 22-Dec-2015
Financial Accounting
1
Lecture – 26
Recap
• With the increase in business, it becomes difficult to maintain separate accounts for every Debtor and every Creditor.
• Control Accounts are opened in the ledger for both Debtors and Creditors.
• Control Accounts are part of double Entry system.
• Subsidiary ledgers are not part of double entry system.
• Control Account system is used only for credit sale and credit purchase.
Financial Accounting
2
Lecture – 26
Subsidiary Books
• To reduce the volume of general ledger, number of books are opened that are called Subsidiary books.
Financial Accounting
3
Lecture – 26
Subsidiary Books- Debtors
• Three subsidiary books are maintained in case of sales / debtors. Sales Journal / Sales Day Book – individual invoice wise
sales are recorded in this Journal. Sales Return / Return Inward Journal – in case the
volume of returns is also high then these are also recorded in a separate register.
Debtors Ledger – this ledger maintains record of individual debtor.
• Cash sale is not included in the debtors control accounts.
Financial Accounting
4
Lecture – 26
Information for Control Accounts
Opening balance of debtors List of debtors balances drawn up to the end of previous period confirms with the aggregate balance of the Control Account.
Credit Sales Periodically total of sales journal is posted into the debtors control account.
Sales Return In case the transaction volume of sales return is high then these are recorded in the sales return journal. Periodically the total is posted in the debtors control a/c.
Cheques / Cash Received List of receipts is extracted from cash and bank book. Or a separate column is maintained in cash and bank books for this purpose
Closing Balance This is the balancing figure. It can also be checked with the total of balances in debtors Control Account.
Financial Accounting
5
Lecture – 26
Recording of Sales
Sales Journal
Date Invoice #
Name / Debtor
Amount
Jan 01, 20-- 01 A 10,000
Jan 15, 20-- 02 B 12,500
Jan 30, 20-- 03 C 15,000
Total 37,500
Debtors Ledger
A Account
Debit
01/1 10,000
Credit
Bal 10,000
B Account
Debit
15/1 12,500
Credit
Bal 12,500
C Account
Debit
30/1 15,000
Credit
Bal 15,000
Financial Accounting
6
Lecture – 26
Recording of Sales
Sales Journal
Date Invoice # Name / Debtor Amount
Jan 01, 20-- 01 A 10,000
Jan 15, 20-- 02 B 12,500
Jan 30, 20-- 03 C 15,000
Total 37,500
General LedgerSales Account
Debit side.
Bal 37,500
Credit side.
Jan Sales 37,500
Debtors Control Account
Debit side.
Jan Sales 37,500
Credit side.
Bal 37,500
Financial Accounting
7
Lecture – 26
Recording of Sales
• Now if we total the balance of three accounts of the debtors
ledger on Jan 30,:A
10,000B 12,500C 15,000Total 37,500
• It will be the same as the balance in the debtors control account of the general ledger.
Financial Accounting
8
Lecture – 26
Recording of Sales Return
Sales Journal
Date Name / Debtor Amount
Jan 15, 20-- A 1,000
Jan 20, 20-- A 500
Jan 25, 20-- B 2,500
Total 4,000
General Ledger
Debtors Control Account
Debit side.
Jan Sales 37,500
Credit side.
Jan Ret 4,000
Bal 33,500
Sales Account
Debit side.
Jan Ret 4,000
Bal 33,500
Credit side.
Jan Sales 37,500
Financial Accounting
9
Lecture – 26
Recording of Sales Return
Sales Journal
Date Name / Debtor Amount
Jan 15, 20-- A 1,000
Jan 20, 20-- A 500
Jan 25, 20-- B 2,500
Total 4,000
A Account
Debit
01/1 10,000
Credit
15/1 1,000
20/1 500
Bal 8,500
B Account
Debit
15/1 12,500
Credit
25/1 2,500
Bal 10,000
C Account
Debit
30/1 15,000
Credit
Bal 15,000
Debtors Ledger
Financial Accounting
10
Lecture – 26
Recording of Sales Return
• Again if we total the balance of three accounts of the debtors ledger on Jan 30,: A 8,500 B 10,000 C 15,000 Total 33,500
• It will be the same as the balance in the debtors control account of the general ledger.
Financial Accounting
11
Lecture – 26
Receipts From Debtors
• When control accounts are used we maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank books are not used.
• On the receipts side of the cash and bank book a column is added in which receipts from debtors are separately noted.
• This type of cash / bank book is also called multi column cash / bank book.
Financial Accounting
12
Lecture – 26
Recording of Receipts – Multi Column Cash Book
Cash / Bank Book
Receipt Side
Date No Narration / Particulars
LedgerCode
Receipt Amount
Receipt fromDebtors
10,000
500
Received from A 5,000 5,000
300
Received from B 2,500 2,500
Received from A 1,000 1,000
Received from C 1,500 1,500
950
1,000
Total 22,750 9,000
Financial Accounting
13
Lecture – 26
Subsidiary Books- Creditors
• The recording of creditors is similar to debtors. The subsidiary books maintained in case of purchases / creditors are: Purchase Journal / Purchase Day Book – individual
purchases are recorded in this Journal. Purchase Return / Return outward Journal – in case the
volume of returns is also high then these are also recorded in a separate register.
Creditors Ledger – this ledger maintains record of individual creditors.
• Cash purchase is not included in the creditors control accounts.
Financial Accounting
14
Lecture – 26
Subsidiary Books - Creditors
Opening balance of Creditors List of creditors balances drawn up to the end of previous period confirms with the aggregate balance of the Control Account.
Credit Purchases Periodically total of purchase journal is posted into the creditors control account.
Purchase Return In case the transaction volume of purchase return is high then these are recorded in the purchase return journal. Periodically the total is posted in the creditors control a/c.
Cheques / Cash Paid List of payments is extracted from cash and bank book. Or a separate column is maintained in cash and bank books for this purpose
Closing Balance This is the balancing figure. It can also be checked with the total of balances in creditors Control Account.
Financial Accounting
15
Lecture – 26
Recording of Purchases
Purchase Journal
Date Name / Debtor Amount
Apr 01, 20-- X 15,000
Apr 10, 20-- Y 20,000
Apr 25, 20-- Z 10,000
Total 45,000
General Ledger
Creditors Control Account
Debit side.
Bal 45,000
Credit side.
Apr Purch 45,000
Purchases Account
Debit side.
Apr Purch 45,000
Credit side.
Bal 45,000
Financial Accounting
16
Lecture – 26
Recording of Purchases
Purchase Journal
Date Name / Debtor Amount
Apr 01, 20-- X 15,000
Apr 10, 20-- Y 20,000
Apr 25, 20-- Z 10,000
Total 45,000
Creditors Ledger
X Account
Debit
Bal 15,000
Credit
1/4 15,000
Y Account
Debit
Bal 20,000
Credit
10/4 20,000
Z Account
Debit
Bal 10,000
Credit
25/4 10,000
Financial Accounting
17
Lecture – 26
Recording of Purchases
• Now if we total the balance of three accounts of the creditors ledger on Apr 30,:
X15,000
Y 20,000Z 10,000Total 45,000
• It will be the same as the balance in the Creditors control account of the general ledger.
Financial Accounting
18
Lecture – 26
Recording of Purchase Return
Purchase Return Journal
Date Name / Debtor Amount
Apr 05, 20-- X 5,000
Apr 15, 20-- Y 8,000
Total 13,000
General Ledger
Creditors Control Account
Debit side.
Apr Ret 13,000
Bal 32,000
Credit side.
Apr Purch 45,000
Purchases Account
Debit side.
Apr Purch 45,000
Credit side.
Apr Ret 13,000
Bal 32,000
Financial Accounting
19
Lecture – 26
Recording of Purchase Return
Purchase Return Journal
Date Name / Debtor Amount
Apr 05, 20-- X 5,000
Apr 15, 20-- Y 8,000
Total 13,000
Creditors Ledger
X Account
Debit
5/4Ret 5,000
Bal 10,000
Credit
1/4 15,000
Z Account
Debit
Bal 10,000
Credit
25/4 10,000
Y Account
Debit
15/4Ret 8,000
Bal 12,000
Credit
10/4 20,000
Financial Accounting
20
Lecture – 26
Recording of Purchase Return
• Again if we total the balance of three accounts of the Creditors ledger on Apr 30,:
A 10,000B 12,000C 10,000Total 32,000
• It will be the same as the balance in the creditors control account of the general ledger.
Financial Accounting
21
Lecture – 26
Payment to Creditors
• On the payment side of the cash and bank book a column is added in which payments to creditors are separately noted.
Financial Accounting
22
Lecture – 26
Recording of Payments – Multi Column cash book
•Cash / Bank Book
Payment Side
Date No Narration / Particulars
LedgerCode
Payment Amount
Payment to Creditors
500
5,000
Received from A 2,500 2,500
3,000
Received from B 1,500 1,500
1,000
Received from C 1,500 1,500
1,950
1,500
Total 18,450 5,500