CHAPTER 16

The payables ledger

Contents
 Personal accounts for suppliers
 Recording transactions in the payables
ledger
 Payments to suppliers
 The age analysis of payables and other
reports
 Contra entries with the receivables
ledger
The need for personal
accounts
 A supplier might telephone, asking for
payment of the full balance due to him
 It is common for businesses to receive
statements of account from their suppliers
monthly. The business needs to maintain its
own records to check that the supplier's
statement is correct.
 The business needs to maintain a complete
record of the items making up the balance
it owes so that it can make appropriate
payments on an appropriate regular basis
to suppliers.
 The business will not usually want to pay
The payables ledger
 The personal accounts showing how
much is owed to each credit supplier of
the business are contained in the
purchase ledger, or payables ledger.

Purchase
returns Discounts
received
Trade accounts payable
 Trade accounts payable consist of those
liabilities which are related to the trade
of the business.
 Other payables will not normally be
recorded in the payables ledger and the
balances owed should instead be
recorded in:
 Liabilities to pay wages and salaries
 Taxes
Discussion
(a) What is the status of a trade account
payable in the accounts of a business?
(i) An asset
(ii) A liability
(iii) An expense
(iv) An item of revenue
Discussion
(b) Which are not normally found in a
payables ledger of trade accounts
payable?
(i) Depreciation (vi) Bank overdraft
provision (vii) Long-term bank
(ii) Personal accounts loan
for suppliers of (viii) Share premium
subcomponents
(ix) Telephone expenses
(iii) Taxation authorities
(x) Drawings
(iv) Sales tax
(xi) Proprietor's capital
authorities
Answer: 2 5 9 only
 Recording transactions

Which is NOT
part of double
entry
How to
check
posting
correctness?
Discounts received
 Remember: ‘Memorandum' discounts
received column in the cash book
 Recording?
Question
Cosmo runs a picture framing business. You are given
the following information about his transactions
during January 20X6.
1. There is a balance of $1,200 in the bank. This is also
reflected in the cash book as a debit balance b/f
2. On 10 January 20X6 Cosmo purchased $400 worth of
glass from Quentin Co. The terms of the sale included
a clause that he would receive a 10% discount if he
paid within 3 weeks.
3. On 15 January 20X6 Cosmo purchased paper, card
and frames worth $2,000 from W Honor Soper. He
would receive a discount of $200 if settling by 31
January 20X6.
4. Cosmo take advantage of the cash discounts offered
and pays both suppliers before the 31 January 20X6.
Task
Prepare
(a) the journal entries to reflect the above
transactions in the cash book and the trade
payables control account.
(b) Cosmo's cash book for the period 1
January to 31 January 20X6 showing the
discount in memorandum column.
(c) Cosmo's trade payables control account
showing the postings for January.
Answer
Supplier statement
reconciliations
Answer
The common items have been ticked off
on the statement and payables ledger
above
The balance brought forward at 30.4.X1
consists of three invoices

Invoices 33004 and 33060 were paid on

4 May and 34114 was part of the
payment on 28 May.
Answer
 Pickett's statement does not show the
payment of $117.77 made on 28 May
 The statement also shows an invoice
34392 dated 21 May, which is not in the
payables ledger
The reasons for reconciling
items
Checks over payments
The age analysis of
payables
 The age analysis of payables will consist
of a listing of payables' balances
analysed between different 'ages' of
debt represented by different items in
the balance, measured in months
Contra entries with the
receivables ledger
 Contra entries 'net off' amounts due to
and from the same parties in the
payables ledger and receivables ledger
respectively.
Example
 If A owes B $200 for purchases and B owes A
$350 for credit sales, the net effect is that B owes
A $150
 Books of A:
 Payables ledger – B – for $200
 Receivables ledger – B – for $350
 Netting off (made in contra)
Question
 You are the payables ledger clerk for a company providing
financial services, and the date is 28 August 20X7. The
company operates a non-integrated payables ledger
system.
 The payables ledger account for a supplier called Kernels
shows the following.
The following facts came to light.
(a) Kernels' invoice 21201 for $97.40, dated 23 August
20X7, was misposted to the account of MPV in the
payables ledger.
(b) The cash payment of $400.00 made on 21 August
20X7 relates to another supplier, ASR.
(c) Item C91004 dated 24 August 20X7 is in fact a credit
note.
(d) Invoice 20642 has been posted to the account twice.
(e) Kernels has a balance of $37.50 in the receivables
ledger, which is to be set off against its balance in the
payables ledger.
Draw up journal entries for the above items and write up
Answer
Answer
Answer
Quiz
1 What does the payables ledger contain?
2 What are trade payables?
3 Give two examples of 'other payables'.
4 What does the age analysis of payables
do?
5 What does settlement 'in contra' mean?
Answer
1 The personal accounts showing how much
is owed to each credit supplier of the
business.
2 Liabilities relating to the trade of the
business, eg purchases of goods for re-sale.
3 (i) Wages and salaries
(ii) Sales tax
4 Lists payables' balances analysed between
different 'ages' of debt.
5 An amount due from a customer in the
receivables ledger is set off against a target
amount owed to the same person in the
payables ledger, or vice versa.
QB 35
A supplier sends you a statement showing a balance
outstanding of $14,350. Your own records show a
balance outstanding of $14,500.
The reason for this difference could be that
A The supplier sent an invoice for $150 which you have
not yet received
B The supplier has allowed you $150 cash discount
which you had omitted to enter in your ledger
C You have paid the supplier $150 which he has not yet
accounted for
D You have returned goods worth $159 which the
supplier has not yet accounted for

Answer: B