Creditors’ Allowances Journal

The purpose of the creditors’ allowances journal is to record transactions related to goods send back to creditors due to being not according to specifications, damaged or correction of errors on invoices that will result in reduced debt to creditors.  Before any of these scenarios occurred, money was owed to creditors which is thus a liability. After returns are made to creditors less money is owed to them. As liabilities decrease on the debit side, creditors control has to be debited. As items other than trading stock comes into the equation the collective name of sundry returns is used as contra entry.  The posting occurs at month end as a column total is posted to creditors control. By applying the double entry principle all the other accounts will have to be credited with creditors control as the contra entry. Column totals to be posted at month end and sundry accounts on transaction date.

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Please note there is not an account called creditors’ allowances.

Debtors’ Allowances Journal

The purpose of the debtors’ allowances journal is to record transactions where goods are returned by debtors due to being faulty or not to specification or where allowances are made due to errors on the invoice.  As starting point therefore debtors owe less money after these debtors’ allowances. As debtors owe the business money it is an asset which now decreases due to owing less money. Debtors control should thus be credited as assets decrease on the credit side. The contra entry is debtors allowances and the posting occurs at month end as it is the sales column total that is involved. Applying the double entry principle, debtors’ allowances needs to be credited with debtors control as contra entry.

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We still need to deal with the cost of sales column total. As goods are returned by the debtors the trading stock of the business increases. As the trading stock now belongs to the business again it is an asset. Assets increase on the debit side. Therefore debit trading stock with cost of sales as contra entry at month end. Applying the double entry principle cost of sales should be credited with trading stock as contra entry.

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As a side note – some of the cost of sales column lines will be empty as the business don’t always receive goods back in stock i.e. damaged goods or correction of invoice errors.

The creditors journal

The purpose of the creditors journal is to record all transactions where the business obtains goods or services on credit. The business receives goods or services now, but will pay in the future. As the business now owes money it means a liability creditors control is created. Liabilities increase on the credit side, hence creditors control should be credited. As many accounts could be debited, a collective name such as sundry purchases are used as the contra entry. The accounts debited should add up to all credit purchases and other than trading stock could include equipment, maintenance, etc. Each of these accounts have as contra entry creditors control. The posting to creditors control takes place at month end whereas all sundry accounts on date of transaction and total columns also at month end.

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The Debtors Journal

The purpose of the debtors journal is to record all credit sales of the business. Credit sales occurs when the business sells goods now, but will only receive payment in the future. As money is owed to the business an asset debtors control is created. As more money is owed the asset debtors control increase and therefore have to be debited. The contra entry is sales. According to the double entry principle therefore sales have to be credited with debtors control as contra entry. As the sales column total is involved the posting occurs at month end.

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The debtors journal also contains the cost of sales column to keep track of profit made on each item sold for credit.  Before selling the trading stock it was the possession of the business and hence an asset. When the sale occurs therefore the asset trading stock decrease. As assets decrease trading stock have to be credited. The contra entry is cost of sales. According to double entry principle the cost of sales account should be debited with trading stock as contra entry. Since cost of sales is a column total the posting occurs at month end.

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The Cash Payments Journal

The purpose of this journal is to record all the transaction where cash moves out of the business bank account.

Bank is an asset as the money belongs to the business. Furthermore this asset decreases as money is paid. Assets decrease on the credit side. Thus bank account should be credited with the total amount of the bank column in the journal at the end of the month. Since the amount paid during the month is made up of various types of transactions such as trading stock, rent paid, interest paid, etc a collective name “total payments” is used rather than the usual practice of an account name as contra entry.

Many other accounts will be debited when the double entry principle is applied. All these accounts that are debited should ad up to the bank amount for the month. Some will be debited at month end namely column totals such as trading stock whereas others namely those in sundry accounts such as rent paid are debited on the day of transaction. The contra entry for all these accounts are bank.

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Finally the non-cash column  discount received should be considered:

Discount is received when paying creditors early. What the business pay the creditors are less than what is owed to creditors. The difference between what is paid and owed is called discount received. The discount received therefore do not form part of bank total. The business owes creditors less money. In fact the sum of what is paid as well as the discount received is by how much the debt reduces. If money is owed to creditors it is a liability. Liabilities decrease as creditors are owed less money after paying them. Creditors control need to be debited as liabilities decrease on the debit side. The contra entry is bank and discount received as there are two legs that together resulted in less debt. According to double entry principle discount received will be credited with creditors control as contra entry. Bank was already addressed at top. As column totals are involved the posting date is month end.

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The Cash Receipts Journal

The purpose of this journal is to record all the transaction where cash ends up in the business bank account.

Bank is an asset as the money belongs to the business. Furthermore this asset increases as money is received. Assets increase on the debit side. Thus bank account should be debited with the total amount of the bank column in the journal at the end of the month. Since the amount received during the month is made up of various types of transactions such as sales, rent received, interest received, etc a collective name “total receipts” is used rather than the usual practice of an account name as contra entry.

Many other accounts will be credited when the double entry principle is applied. All these accounts that are credited should ad up to the bank amount for the month. Some will be credited at month end namely column totals such as sales whereas others namely those in sundry accounts such as rent received are credited on the day of transaction. The contra entry for all these accounts are bank.

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Finally the non-cash columns cost of sales and discount allowed should be considered:

The cost of sales column is present to track the profit made by considering the value of the original purchase price of trading stock and do not form part of bank total. Trading stock belongs to the business before it is sold and is therefore an asset. When it is sold assets decrease by the cost price. Thus trading stock is credited as assets decrease on the credit side. The contra entry is cost of sales. According to double entry principle cost of sales should be debited with contra entry trading stock. As column totals are involved this posting occurs at month end.

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Discount is allowed to encourage early payment by debtors that owes the business money. What the business thus receive from debtors into the bank account is less than what is owed. The difference between what is received and owed is called discount allowed. The discount allowed therefore do not form part of bank total. Debtors owe the business however less money. In fact the sum of what they paid as well as the discount allowed. If money is owed to the business it is an asset as the business has a right to receive the money in future. Assets decrease as the debtors owe now less money. Debtors control need to be credited as assets decrease on credit side. The contra entry is bank and discount allowed as there are two legs that together resulted in less debt. According to double entry principle discount allowed will be debited with debtors control as contra entry. Bank was already addressed at top. As column totals are involved the posting date is month end.

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