Recording Credit Transactions
Introduction
Credit sales and purchases are transactions where goods or services change hands immediately, but payment is not made or received until some time in the future.
Money that a business is owed is accounted for in the receivables ledger.
Money that a business owes is accounted for in the payables ledger.
Illustration
A business conducts the following transactions:
(1)Sell goods for cash for $60.(2)Pay insurance premium by cheque – $400.(3)Sell goods for $250 – the customer will pay in a month.(4)Pay $50 petrol for the delivery van.(5)Buy $170 goods for resale on credit.(6)Buys $57 of goods for resale, paying by cheque.(7)Buy another $40 goods for resale, paying cash.(7)Buy a new computer for the business for $800.These transactions are recorded in the ledger accounts as follows:
| Cash |
| $ | | $ |
Sales (1) | 60 | Insurance (2) | 400 |
| | Motor expenses (4) | 50 |
| | Purchases (6) | 57 |
| | Purchases (7) | 40 |
| | Non-current assets (8) | 800 |
| | | |
| Sales |
| $ | | $ |
| | Bank (1) | 60 |
| | Receivables (3) | 250 |
| | | |
| Insurance (expense) |
| $ | | $ |
Bank (2) | 400 | | |
| | | |
| Receivables |
| $ | | $ |
Sales (3) | 250 | | |
| | | |
| Motor expenses |
| $ | | $ |
Bank (4) | 50 | | |
| Purchases |
| $ | | $ |
Payables (5) | 170 | | |
| Cash (6) | 57 | | |
Cash (7) | 40 | | |
| | | |
| Payables |
| $ | | $ |
| | Purchases (5) | 170 |
| Non-current asset computer) |
| $ | | $ |
Bank (8) | 800 | | |
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Created at 10/23/2012 2:55 PM by System Account
(GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
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Last modified at 11/30/2012 11:07 AM by System Account
(GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
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