Contra or set offs

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
How comes that the set off's or contra's are always a debit in the PLC and a credit in the SLC. IS this the case even if WE owe more money than the customer stroke supplier, and if so why?If this is the case then what if THEY owe us more money than we owe them? How comes the four entries are identical even though they are almost opposites?<BR>Any help on explaining this i would be very grateful, because the book i have does not go into that much detail.

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Contra or set offs

    Hi, Dean (or Will?!?!?)<BR><BR>Confusing, isn't it. At least, I was also confused.<BR><BR>However, remember that you are only off-setting the difference between the two accounts.<BR><BR>Now, if you sent a payment to a supplier, then you would debit the PLC and credit the bank. However, in this case, the "bank" transaction is actually a "payment" to someone in the form of goods. Therefore, you credit their account, reducing their debt to you. As it happens, the supplier is also a customer. Therefore, you credit the SLC. That completes the double entry.<BR><BR>The opposite is true if they pay you in goods. It is as if you are receiving a payment from a customer (which they are) and you credit their account, reducing the amount they owe you. The double entry is not into your bank account, but it reduces the amount you owe them. Therefore, it's a debit in your PLC.<BR><BR>To clarify.<BR><b>1. They owe you.</b><BR>You send goods for £100: Dr SLC £100, Cr Sales £100<BR>They send goods for £50: Dr Purchases £50, Cr PLC £50<BR><BR>Now, look at the journal entries for the contra:<BR>Dr PLC £50, Cr SLC<BR>Why? Because they have "paid" £50 to you.<BR><BR>That leaves a PLC balance of £ Nil, because you paid more than they did; and a SLC balance of Dr £50, because they didn't pay you enough.<BR><BR><b>2. You owe them.</b><BR>You send goods for £50: Dr SLC £50, Cr Sales £50<BR>They send goods for £100: Dr Purchases £100, Cr PLC £100<BR><BR>Now, look at the journal entries for the contra:<BR>Dr PLC £50, Cr SLC<BR>Why? Because you have "paid" £50 to them.<BR><BR>That leaves a PLC balance of Cr £50, because they paid more than you did; and a SLC balance of £ Nil, because you didn't pay them enough.<BR><BR>I hope this makes sense and explains it. I had to work through it a few times, myself, before I understood it. In fact, I still have to draw the above 'T' accounts to get it right!<BR><BR>Mike<BR>

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