FRA - help with preparing the purchase ledger and sales ledger

emmag

This is going round and round in my head and I just can't understand how to put the accounts together when trying to find missing data.

I'm working from exam paper june 2008 and I have the answers in front of me and they just don't make sense.

You are asked to prepare a purchases ledger account for the year ended 31 March 2008, showing clearly the payments from the back as the balancing figure.

Trade creditors
31 March 2007 = £5,100
31 March 2008 = £6,800

Purchases amounted to £35,600

Why are purchases put on the Credit side? Why is the opening trade creditors figure put on the Cr side and the closing figure put on the debit side?

Can anybody explain this as simply as possible please?

Bluewednesday

The opening trade creditors is a credit balance as it is a liability of the business.

I think you might be getting confused with the purchases (which would be a debit balance) rather than the control account.

The original entry would have been debit purchases credit purchase ledger control account.

The closing balance is on the debit side because when it is brought forward it will go to the credit side.

Does that help?

In your example if you draw a t account you will have the 5100 and 35600 on the credit side and the 6800 on the debit side. The difference is the bank payments

emmag

Still having problems with this. It's something that just hasn't clicked yet

Bluewednesday

Which bit are you struggling with?

numbersishard

emmag wrote: »

This is going round and round in my head and I just can't understand how to put the accounts together when trying to find missing data.

I'm working from exam paper june 2008 and I have the answers in front of me and they just don't make sense.

You are asked to prepare a purchases ledger account for the year ended 31 March 2008, showing clearly the payments from the back as the balancing figure.

Trade creditors
31 March 2007 = £5,100
31 March 2008 = £6,800

Purchases amounted to £35,600

Why are purchases put on the Credit side? Why is the opening trade creditors figure put on the Cr side and the closing figure put on the debit side?

Can anybody explain this as simply as possible please?

I struggled with this too but I found this helped me:

Firstly dont mix sales and sales ledger control and ditto purchases and purchase ledger control.

Remember Sales are an income and therefore a credit BUT sales ledger control are the debtors (ie people who owe you - an asset) and therefore a debit. Debit Debtors.

Purchases are an expense and therefore a debit but purchase ledger control are the creditors (i.e. people you owe - a liability) and therefore a credit. Credit creditors.

Once you get that clicked in your head its quite easy to follow and sometimes its easier to work backwards from the balance brought down figure.

Therefore, to answer the above (might help if you doodle this out) start with what you know for sure

credit side

CReditors b/d at March 07- 5100
purchases 35600
balance off at 40700

debit side

creditors carried down end up on the credit side so must start from the debit side so

balance carried down 6800
Therefore, to balance off to 40700 the figure is 33900 and this must be the bank amount and therefore answers the question.

I hope this helps you. I definately found that once you're clear about sales and sales ledger control being opposites, ditto purchases and plc then you should be ok.