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13 Cards in this Set
- Front
- Back
Trade payables |
The balance on the payables ledger represents the amounts owing to suppliers for goods or services purchased during the accounting period but NOT paid for by the end of that accounting period
Trade payables will increase if expenses are greater than payments
Trade payables will decrease if expenses are lower than payments |
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Trade receivables |
The balance on the receivables ledger represents amounts still owed to the business for goods or services sold during the accounting period but for which payment has NOT been received by the end of that accounting period
Trade receivables will increase if sales are greater than receipts
Trade receivables will decrease if sales are lower than receipts |
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Accruals |
Accruals are expenses which relate to an accounting period but have not yet been paid. E.G electricity may have been consumed during a period but not yet billed.
These expenses are added to the relevant expense in the income statement and shown as a current liability in the statement of financial position. |
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Prepayments |
Prepayments are expenses which have already been paid but related to a future accounting period. E.G rent may have been paid quarterly in advance for the period January to March. If the year end is end of Feb, some of this payment (one month) will relate to the next accounting period.
The amount paid in advance is deducted from the relevant expense in the income statement and shown as a current asset in the statement of financial position |
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Accounting treatment |
Accruals: dr expense, cr current liability
Prepayments: dr current asset, cr expense |
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Accounting for bad debts |
Bad debts are specific debts owed to a business which are never going to be paid. They are written off as an expense in the income statement.
Notes: - Sales are shown at their invoice value in the income statement. They are never adjusted for bad debts - Bad debts written off are shown as an expense in the income statement. - The credit entry removes the receivable from the receivables ledger. |
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The double entry for writing off a bad debt |
DR bad debts CR the relevant trade receivable |
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At the end of the accounting period the total balance on the bad debts account will be transferred to the income statement |
DR Income Statement CR Bad debts |
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Bad debts recovered |
In some instances, a debt written off as bad may be paid in a later period. The amount should be recorded as additional income in the income statement of the period in which the payment is recovered. |
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Double entry for bad debts recovered |
DR Bank/Cash CR Bad debts recoverable |
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At the year end this amount will be transferred to the income statement |
DR Bad debts recoverable CR Income Statement (shown as other income) |
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Allowance for receivables |
Experience may show that a certain proportion of receivables at the end of a period will not actually be paid. It is prudent therefore to recognise this and make an allowance for non-payments.
This estimate is known as the allowance for receivables and has a separate ledger account. |
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Several possibilities with allowance for receivables |
When an allowance is first made, it is charged as an expense in the income statement.
When an allowance exists but is increased, the amount of the increase is charged as an expense in the income statement.
When an allowance exists but is decreased, the amount of the decrease is credited back to the income statement (shown as other income)
In the statement of financial position the full amount of the allowance is taken away from trade receivables. |