Financial accounting mgt101 power point slides lecture 26

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.

2
Lecture – 26
Subsidiary Books
• To reduce the volume of general ledger, number of books
are opened that are called Subsidiary books.

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.

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.

5
Lecture – 26
Recording of Sales
Sales Journal
Date Invoic
e #
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

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 Ledger
Sales 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

7
Lecture – 26
Recording of Sales
• Now if we total the balance of three accounts of the debtors
ledger on Jan 30,:
A 10,000
B 12,500
C 15,000
Total 37,500
• It will be the same as the balance in the debtors control
account of the general ledger.

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

9
Lecture – 26
Sales Journal
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

10
Lecture – 26
• 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

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.

12
Lecture – 26
Recording of Receipts – Multi Column Cash Book
Cash / Bank Book
Receipt Side
Date No Narration /
Particulars
Ledger
Code
Receipt
Amount
Receipt from
Debtors
10,000
500
Received from A 5,000 5,000
300
Received from B 2,500 2,500
Received from C 1,500 1,500
950
1,000
Total 22,750 9,000

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.

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.

15
Lecture – 26
Recording of Purchases
Purchase Journal
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

16
Lecture – 26
Purchase Journal
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

17
Lecture – 26
• Now if we total the balance of three accounts of the
creditors ledger on Apr 30,:
X 15,000
Y 20,000
Z 10,000
Total 45,000
• It will be the same as the balance in the Creditors control

18
Lecture – 26
Recording of Purchase Return
Purchase Return Journal
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

19
Lecture – 26
Purchase Return Journal
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

20
Lecture – 26
• Again if we total the balance of three accounts of the
Creditors ledger on Apr 30,:
A 10,000
B 12,000
C 10,000
Total 32,000
• It will be the same as the balance in the creditors control

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.

22
Lecture – 26
Recording of Payments – Multi Column cash book
Cash / Bank Book
Payment Side
Date No Narration /
Particulars
Ledger
Code
Payment
Amount
Payment to
Creditors
500
5,000
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

Financial accounting mgt101 power point slides lecture 26

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Financial accounting mgt101 power point slides lecture 26