ACCA F3 (INT) Financial Accounting - 2010 - Study text - Emile Woolf Publishing
Подождите немного. Документ загружается.
Chapter 4: Recording transactions: sales, purchases and cash
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 95
Transactions in the payables ledger
Transactions in the payables ledger for individual suppliers are recorded in a
similar way. If you can understand the transactions in the receivables ledger, you
should be able to work out the appropriate accounting entries for payables.
For your examination, you might be required to calculate the value of a ‘missing
item’ in a receivables or trade payables account, and it is important that you should
understand how entries are recorded in these accounts, on the debit or the credit
side.
Exercise 1
Record the following transactions in both the payables ledger accounts for trade
suppliers and also in the main ledger.
$
Purchasesoncredit
SupplierW 3,000
SupplierX 6,000
SupplierY 2,000
SupplierZ 7,000
18,000
Purchasereturns
SupplierX 2,000
Cashpaidto
SupplierW 2,900
SupplierZ 2,500
5,400
Earlysettlementdiscountreceived
SupplierW 100
1.7 Contra entries
A contra entry in book-keeping is a double entry that offsets one amount against
another. An example of a contra entry occurs when a business entity sells goods or
services to another entity, and also buys goods or services from the same entity. The
other entity is both a customer and a supplier, and might therefore be a receivable
and a trade payable at the same time. When this happens, the two entities might
agree to offset the amounts that they owe each other, leaving a net amount payable
by the entity with the higher debt.
A contra entry records the offsetting of these amounts.
Paper F3: Financial accounting (International)
96 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Contra entries must be made in the main ledger and also the receivables and
payables ledgers:
In the main ledger:
Debit: Trade payables
Credit: Trade receivables
In the receivables ledger
Credit: The individual customer account
In the payables ledger
Debit: The individual supplier account.
Example
Entity A buys goods from Entity Z, and also sells services to Entity Z. Entity A
currently owes $12,000 to Entity Z and is owed $5,000 by Entity Z.
It might be agreed to offset these two debts, leaving Entity A owing $7,000 to Entity Z.
A contra entry is used to record this agreement in the accounting system.
Debit Credit
Inthemainledger
$ $
Debit:Payablescontrolaccount 5,000
Credit:Receivablescontrolaccount5,000
(Thisreducesthebalanceonbothcontrolaccounts)
Inthereceivablesledger:
CredittheaccountofEntityZ5,000
Inthepayablesledger:
DebittheaccountofEntityZ 5,000
Chapter 4: Recording transactions: sales, purchases and cash
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 97
Accounting for sales tax
The nature of sales tax
The accounting treatment of sales tax
Note on the sales tax arithmetic
Sales tax and discounts
2 Accounting for sales tax
2.1 The nature of sales tax
Many countries have a tax on sales, where the tax is collected for the government by
the businesses that make the sales. In the UK, sales tax is called value added tax or
VAT.
The rules relating to sales tax are similar for most countries, and accounting for sales
tax is therefore also similar.
Business entities are required to register as sales tax collectors. A business that is
registered for the sales tax:
must charge tax at the appropriate rate on the goods or services that it sells,
collects the tax for the government,
but can claim a repayment of the sales tax that it pays on its own purchases.
Since a registered business collects tax on its sales and reclaims the tax that it has
paid, it is required to pay to the government only the difference between:
sales tax collected, and
sales tax paid.
Sales tax on goods or services sold A
Less: Sales tax on purchases B
Equals: Net payment of tax to the tax authorities A – B
Example
Entity A operates a stone quarry, and sells a piece of stone to Entity B for $500 plus
sales tax of 10%. Entity B specialises in making stone work surfaces for kitchens. It
uses the stone it has bought to make a kitchen work surface that it sells to Entity C
for $2,000 plus sales tax at 10%. Entity C sells the work surface to a customer for
$3,000 plus sales tax at 10%.
Entities A, B and C are all registered as tax collectors.
Paper F3: Financial accounting (International)
98 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
In this simplified example, the payments of the sales tax are as follows:
EntityA
Entity
B
Entity
C
Final
customer
$ $ $ $
Salestaxcollected 50 200 300 0
Salestaxpaid 0 50 200 300
Paymentoftaxtothegovernment 50 150 100 ‐
This example should illustrate that all the sales tax is paid by the final customer for the
finished consumer product. The tax on the final product is $300 (10% of $3,000).
However, the tax is paid to the government at different stages in the ‘supply chain’,
from the sale of the original raw materials to the sale of the final product. In this
example, the total tax of $300 is paid in three stages, $50 by A, $150 by B and $100 by C.
Each business entity must record the sales tax that it collects, and the sales tax that it
pays, and account to the government (tax authorities) for the difference.
2.2 The accounting treatment of sales tax
Sales tax charged on sales to customers is not a part of the sales revenue of a
business. It is money payable to the government as tax.
Sales tax on purchases is not a part of the purchase costs or expenses of a business. It
is a tax that is paid but then reclaimed from the government.
However, customers must pay the full sales price, including the sales tax. Similarly,
amounts payable to a supplier include the sales tax payable.
The accounting treatment of sales tax is therefore as follows.
Sales tax and sales Debit Credit
Trade receivables (credit sales) or Bank (cash sales) X
This debit includes the sales tax in the total amount
Sales (excluding sales tax) X
Sales tax account (tax on the sales) X
Sales tax and purchases Debit Credit
Purchases (excluding sales tax) X
Sales tax account (tax on the purchases) X
Trade payables (purchases on credit) or Bank (cash purchases) X
This credit includes the sales tax in the total amount
Chapter 4: Recording transactions: sales, purchases and cash
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 99
Example
A company sells goods for $10,000 plus sales tax of 18%. These transactions should
be recorded in the main ledger as follows:
Salesaccount
$ $
Tradereceivables 10,000
Salestaxaccount
$ $
Tradereceivables 1,800
Tradereceivablesaccount
$ $
Sales/Salestax 11,800
Sales tax account
The sales tax account is an asset/liability account. The balance on the account
represents the difference between the sales tax on sales and the sales tax on
purchases. The balance on this account is usually a credit balance, representing the
net amount payable to the government.
When the tax is paid to the government, the accounting treatment is:
Payment of sales tax to the government Debit Credit
Sales tax account X
Bank account X
2.3 Note on the sales tax arithmetic
If sales tax is X% of the basic price, and you are given the value of sales or purchases
including the sales tax, you should calculate the sales price or purchase price
excluding the sales tax as follows:
Price excluding sales tax = Price including sales tax × 100
(100 + X)
Sales tax = Price including sales tax × X
(100 + X)
Paper F3: Financial accounting (International)
100 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Example
A business is established and immediately registers for sales tax. During its first
trading period, its sales excluding sales tax were $140,000 and its purchases
including sales tax were $60,000. All sales and purchases are on credit. Sales tax is at
the rate of 20%. At the end of the period, the business paid to the government all the
sales tax payable for the period.
The accounting treatment of these transactions is as follows (in journal entry
format):
Debit Credit
$ $
Tradereceivables 168,000
Sales140,000
Salestaxaccount28,000
Salesfortheperiod
Purchases 50,000
Salestaxaccount 10,000
Tradepayables60,000
Purchasesfortheperiod
Salestaxaccount 18,000
Bank18,000
Paymentofsalestaxtothegovernment
Note: The sales tax on purchases is $60,000 × 20/120. Purchases excluding sales tax
are $60,000 × 100/120.
The sales tax account for the period is summarised as follows:
Salestaxaccount(Salestaxpayable/receivable)
$ $
Tradepayables 10,000 Tradereceivables 28,000
Bank 18,000
28,000 28,000
In practice, there is usually a balance on the sales tax account at the end of an
accounting period. It is usually a credit balance, representing the net amount of tax
that is currently payable to the government.
Exercise 2
A business has credit sales of $90,000 plus sales tax of 10%. It has purchases of
$44,000, which include sales tax at 10%. Using T accounts, show how these
transactions would be recorded in the main ledger.
Chapter 4: Recording transactions: sales, purchases and cash
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 101
Exercise 3
A business has sales of $179,400, all on credit. These sales include sales tax at 15% of
the basic price. In the same period, purchases were $95,450, including sales tax at
15%, and there were sundry expenses of $2,000 plus sales tax at 15%. (These sundry
expenses have not yet been paid, and should be accounted for as payables.)
Required
Enter these transactions in the accounts in the main ledger.
2.4 Sales tax and discounts
On a sales invoice a customer could be allowed a trade discount which is usually
given to long standing wholesale customers. There might also be a settlement
discount offered for early payment.
These two types of discount have different effects when calculating the sales tax
due.
Trade discount – A trade discount is deducted from list price, so the amount of sales
tax payable, shown on the invoice, is calculated on the price after deducting the
trade discount.
Settlement discount – A settlement discount is deducted from the amount shown in
the invoice deducted from net list price for calculation of sales tax.
When a settlement discount is taken, the amount payable is:
The invoice amount including sales tax X
Less: The settlement discount (X)
Less: The sales tax on the settlement discount. (X)
Amount payable X
Alternatively, this is:
The invoice amount excluding the sales tax X
Less: The settlement discount (X)
Equals: Net amount payable excluding sales tax X
Plus: The sales tax on this amount X
Amount payable X
Example
A business sells goods on credit for a list price of $100,000. A trade discount of 20%
is given and a settlement discount of 4% has been offered for payment within 10
days. Sales tax is at the rate of 17.5%.
Paper F3: Financial accounting (International)
102 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
The amount shown in the invoice as due from the customer is:
$
Listprice 100,000
Less:tradediscount (20,000)
––––––––
Netprice 80,000
Salestax(seebelow) 13,440
––––––––
Totalamountpayable 93,440
––––––––
This is the amount due from the supplier for the goods.
If the discount is taken, the amount payable is calculated as follows:
$
Netprice 80,000
Less:settlementdiscount(4%×80,000) (3,200)
––––––––
76,800
––––––––
Salestax(17.5%×76,800) 13,440
––––––––
Chapter 4: Recording transactions: sales, purchases and cash
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 103
More about books of prime entry
Cash book: recording cash receipts
Cash book: recording cash payments
Sales day book
Purchases day book
Sales returns day book
Purchases returns day book
3 More about books of prime entry
As explained earlier, accounting transactions are not recorded directly in the
ledgers. Instead they are listed in books of prime entry. Each of these ‘books’ or
‘journals’ is used to record different types of transaction.
After recording transactions in books of prime entry, they are transferred (or
‘posted’) at a later time to the appropriate accounts in:
the main ledger, and also
for transactions involving sales to (or sales returns by) credit customers, the
receivables ledger
for transactions involving purchases on credit (or purchase returns), the
payables ledger.
3.1 Cash book: recording cash receipts
The cash book is used to record receipts of ‘cash’ and payments of ‘cash’. ‘Cash’
means money going through the bank account. A simplified example of the cash
receipts side of the cash book is shown below.
Cashreceipts Total Receivables
Other
receipts
Settlement
discountsallowed
(memorandum)
$ $ $ $
SmithCompany 300 300
KBrown 500 500
Newcapital 5,000 5,000
CCropper 580 580 20
VBIndustries 870 870 ‐ 30
7,2502,2505,00050
Posting receipts from the cash book to the ledgers
In the example above:
The total cash received ($7,250) will be debited to the bank account in the main
ledger.
Paper F3: Financial accounting (International)
104 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
The total amount of cash received from trade receivables ($2,250) will be
credited to the total trade receivables account in the main ledger.
The capital of $5,000 paid into the business will be credited to the Capital
account.
The cash settlement discounts allowed ($50 in the example above) is not a cash
item but is included in a memorandum column in the cash book. It should be (1)
credited to total trade receivables and (2) debited to discounts allowed (=
expense) in the main ledger.
The cash received from individual customers and the discounts allowed to
individual customers will be credited to their individual accounts in the
receivables ledger.
3.2 Cash book: recording payments
A simplified example of the cash payments side of the cash book is shown below.
Cashpayments Total Payables
Other
payments
Settlementdiscounts
received
(memorandum)
$ $ $ $
KPTSupplies 590 590 10
DuckCompany 800 800
Interestpaid 600 600
Drawings 3,000 3,000
FastSupplies 2,150 2,150 ‐ 100
7,140 3,540 3,600 110
Posting payments from the cash book to the ledgers
In this example:
The total cash paid ($7,140) will be credited to the bank account in the main
ledger.
The total amount of cash paid for trade payables ($3,540) will be debited to the
total trade payables account in the main ledger.
The drawings paid out to the owner ($3,000) will be debited to a drawings
account in the main ledger, and the interest paid ($600) will be debited in the
interest expenses account.
The cash settlement discounts received from suppliers ($110 in the example
above) are not a cash item, but discounts received are included in the cash book
in a memorandum column. Discounts received are then posted to the main
ledger by debiting the total trade payables account and crediting the discounts
received account in the main ledger. Discounts received are accounted for as
income (or a negative expense).
The cash paid to individual suppliers and the discounts received from
individual suppliers will be debited to their individual accounts in the payables
ledger.