Sales & Purchase Ledgers

Q: How do you account for a provision (allowance) for doubtful debts affecting receivables?

A provision for doubtful debts estimates receivables that may not be collected without writing off specific accounts. Create/increase it by debiting the doubtful debts expense and crediting the allowance (a contra to receivables); reduce it with the reverse entry. Net receivables shown = gross receivables less the allowance.

Q: What is the difference between the memorandum ledger balance and the control account balance?

The memorandum (subsidiary) ledger balance is the total of all individual personal accounts; the control account balance is the independently-posted total in the nominal ledger. They should agree; a difference signals an error in one of them, found via a control account reconciliation.

Q: What is a purchase invoice checked against before posting?

Before posting, a purchase invoice is checked against the purchase order (that it was ordered), the goods received note (that goods arrived), and for arithmetic/price/VAT accuracy. This three-way matching ensures the business only records and pays for goods correctly ordered and received.

Q: How do you record interest charged to a slow-paying customer?

Interest charged on an overdue customer account is income: debit the customer's account in the sales ledger (increasing what they owe) and credit interest income (or a sundry income account). It also increases the receivables control account. It's usually recorded via the journal.

Q: How is VAT bad-debt relief handled when writing off a receivable?

If output VAT was paid on a sale that becomes a bad debt (after a qualifying period), the business can reclaim the VAT element. On write-off, debit bad debts expense for the net and debit the VAT account for the reclaimable VAT, crediting the customer for the gross. Rules on timing and conditions vary by jurisdiction.

25 question(s)

How do you account for a provision (allowance) for doubtful debts affecting receivables?

Advanced

A provision for doubtful debts estimates receivables that may not be collected without writing off specific accounts. Create/increase it by debiting the doubtful debts expense and crediting the allowance (a contra to receivables); reduce it with the reverse entry. Net receivables shown = gross receivables less the allowance.

Create 400 allowance: Dr Doubtful Debts Expense 400; Cr Allowance for Doubtful Debts 400.

Real-world example The business provides 5% of debtors as an allowance, reducing net receivables without removing specific balances.

Common follow-ups: How does an allowance differ from a write-off? | What is net receivables?

Control Accounts Correcting Errors Sales & Purchase Ledgers

What is the difference between the memorandum ledger balance and the control account balance?

Intermediate

The memorandum (subsidiary) ledger balance is the total of all individual personal accounts; the control account balance is the independently-posted total in the nominal ledger. They should agree; a difference signals an error in one of them, found via a control account reconciliation.

Real-world example The debtors list totals 6,500 and should equal the sales ledger control account balance.

Common follow-ups: Why should the two agree? | What does a difference indicate?

Control Accounts Correcting Errors Sales & Purchase Ledgers

What is a purchase invoice checked against before posting?

Beginner

Before posting, a purchase invoice is checked against the purchase order (that it was ordered), the goods received note (that goods arrived), and for arithmetic/price/VAT accuracy. This three-way matching ensures the business only records and pays for goods correctly ordered and received.

Real-world example The bookkeeper matches the supplier invoice to the order and delivery note before entering it in the purchases day book.

Common follow-ups: What three documents are matched? | Why match before posting?

Books of Prime Entry Control Accounts Sales & Purchase Ledgers

How do you record interest charged to a slow-paying customer?

Intermediate

Interest charged on an overdue customer account is income: debit the customer's account in the sales ledger (increasing what they owe) and credit interest income (or a sundry income account). It also increases the receivables control account. It's usually recorded via the journal.

Charge 25 interest: Dr Customer (sales ledger) 25; Cr Interest Income 25.

Real-world example A late-paying customer is charged interest, increasing their balance and recording income.

Common follow-ups: Which account is credited? | Does it affect the control account?

Control Accounts Cash Book & Petty Cash Sales & Purchase Ledgers

How is VAT bad-debt relief handled when writing off a receivable?

Advanced

If output VAT was paid on a sale that becomes a bad debt (after a qualifying period), the business can reclaim the VAT element. On write-off, debit bad debts expense for the net and debit the VAT account for the reclaimable VAT, crediting the customer for the gross. Rules on timing and conditions vary by jurisdiction.

Write off 1,200 gross (1,000 + 200 VAT): Dr Bad Debts 1,000; Dr VAT 200; Cr Debtor 1,200.

Real-world example On writing off an old debt, the business reclaims the VAT it had already paid on the sale.

Common follow-ups: When can VAT relief be claimed? | How is the gross split on write-off?

Control Accounts Correcting Errors Sales & Purchase Ledgers