Time Tracer Ltd - Publishing

ACCOUNTING INSIGHT

2nd Edition by Edwin Olima FCCA

ISBN 0-9543820-1-3

 

 

 

 

 

 

 

 

 

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In the normal course of trading, the supplier  purchase invoices  will have to be paid off. In this exercise you will update the purchases list (Chapter 2 ) to show the invoices that have been paid off.

 

Step 1.        Get the bank cheque book stubs  from your Work Pack, page 43 . The information on them will be used to update the purchases list created in Chapter 2 .

 

Step 2.      Fill in the “Paid Amount” column with the amount of the cheque used to pay off the invoice.

 

Step 3.        Look through the bank statement (Work Pack, page 44 )  for direct debit card payments  of purchase invoices  and fill in the “Paid Amount” column with the amount used to pay off the invoice.

 

Step 4.    Complete the “Outstanding Amount” column with the unpaid amount of each purchase invoice. This is equal to the “Gross ” amount less the “Paid Amount”.

 

Step 5.    Once you have updated the purchases list with all payments, total up the “Paid Amount” and “Outstanding Amount” columns. Check the total “Outstanding Amount” is correct by deducting the total “Paid Amount” from the total “Gross ” amount.

 

The “Outstanding Amount” column is the updated list of the purchase invoices  not yet paid off. The total in this column is also called your trade creditors  balance. They are called trade creditors as they arise in the course of trading (as opposed to other creditors like loan creditors).

 

You need to do the above exercise with every batch  of purchase invoices  that have been paid so that you know at any given time how much you owe your suppliers  (trade creditors ).

 

As you can imagine in a larger business with many transactions  and hundreds of suppliers , the list we have got would become so large that it would not be possible to keep track of individual supplier balances easily.

 

To make the job easier, once again accountants create a list for each supplier and call this a supplier account . In here they keep record of all the purchase invoices , cheques /cash paid out in respect of the supplier in one place. And it is easier to track how much is owed to that supplier at any given time.

 

These accounts are also kept together in one book (ledger) called the trade creditors  ledger  (also known as the purchase ledger ).

 

The balance on every suppliers  account is then added up to get the total balance that the business owes to the suppliers. This balance is known as the trade creditors  balance  or creditors ledger balance  or purchase ledger  balance or the bought ledger balance or the accounts payable balance .


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