Double Entry Bookeeping (PLEASE HELP)

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Can someone please tell me if im thinking in the right direction here or if i am completely wrong!!

Purchase Invoice for £117.50 comes in and is paid.

DR
Bank 117.50
Cr
Supplier Account 117.50

Dr
VAT 17.50
Dr
Purchases
100.00

Cr
Supplier Control Account 117.50

Then obviously the opposite for sales???

Or am i completely thick!!

:?

Help appreciated!! Thanks

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Doubte Entry Bookeeping (PLEASE HELP)

    I don't know either - completely confused! Somebody help please (explain it as though we are thick!)

    Thanks :lol:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    If you're paying the invoice why are you debiting the bank account?

    Remember that the subsidiary sales/purchase ledgers don't form part of the double entry system.

    Scott.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    Ok so if im wrong whats the correct answer??

    Im confused hence me asking for help!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    You credit the bank account.

    Scott.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    On receipt of the purchase invoice you would:

    DR: Purchases (net amount)
    DR: VAT
    CR: Creditors

    Then when you pay the invoice, you would:

    DR: Creditors
    CR: Bank

    When sending out a sales invoice, you:

    DR: Debtors
    CR: Sales (net amount)
    CR: VAT

    On receipt of payment for the invoice, you:

    DR: Bank
    CR: Debtors

    If it was a cash sale (goods and payment received at same time), you simply:

    DR: Bank
    CR: Sales

    Hope that helps! :-)

    PP22
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    Just to add, as this should help you understand a bit more:

    The bank account is usually an asset (unless the account is overdrawn!) and assets are DEBITS, therefore:

    When cash is received IN, you DEBIT the bank account and INCREASE the asset.

    When cash is paid OUT, you CREDIT the bank account and DECREASE the asset.

    Double entry can be hard to get your head around, but don't worry - you'll get there!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    Thanks funkyphantom thats helps a lot!!

    Lydia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    OK let's see.

    You get the invoice for 117.50 and it's entered into the purchases day book. The ledger entries will be:

    Cr Supplier's purchase ledger account 117.50
    Cr Purchase ledger control 117.50
    Dr Purchases 100
    Dr VAT 17.50

    On payment:

    Cr Bank (or enter into the payments side of the cash book) 117.50
    Dr Supplier's purchase ledger account 117.50
    Dr Purchase ledger control account 117.50

    If you are taking a settlement discount the additional entries will be:

    Dr Supplier's purchase ledger account
    Dr Purchase ledger control account
    Cr Discounts receved

    In practice you would enter the totals from the day books and cash book into the main ledger accounts rather than individual transactions but the principle is just the same.

    Hope that helps.

    Chris

    PS Don't you just hate it when you've written an answer only to find someone got there first while you were writing :roll:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    Aww thanks anyway :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    Thanks CJC that helps alot, i knew you had to credit the supplier account, debit vat and purchases, but it was the bank bit i was gettin confused on i think!

    Hopefully ill remember for next time :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    i agree with sam1987 surely if your paying an invoice money is taken from your bank so it must appear in DB because it has been taken from the bank to pay the invoice
    however if you have been paid it will appear on the cr because the customer has paid you therefore your bank balance has been credited
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    This confuses me big style too! Trouble is I worked in a bank before this and debits and credits seem logical to be db bank cr supplier, but i think because you working on the business side and not the bank accounnt view it's the other way around so you cr bank account db supplier account coz you've paid off that debt. Still confused!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    Money coming out of your bank account is reducing the asset and is a CREDIT.

    Money going into your bank account is increasing the asset and is a DEBIT.

    Scott.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    Yeah scott is right guys. I've mastered it now, and i done my preparing ledger balances mock test the other day and my trial balance balanced!! :D

    Think of it as when you pay a supplier you need money in the bank to pay them. So think of taking the money from a supplier account (DR) and putting it into the bank (CR) for when you pay them.

    That might confuse you now but it helps me!!

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    Yeah banks say it the wrong way round. They say your bank a/c is in CREDIT because this means they owe you the money, they are a CREDITOR to you. When youre overdrawn youre in DEBIT, this means you owe money to them so you are a DEBTOR to them. Dont worry, it took me ages to get my head round it because I work in a bank and an accounts office as well and I used to get the two muddled!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    DR: VAT 17.50
    DR: Purchases 100.00
    CR: Bank 117.50
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Double Entry Bookeeping (PLEASE HELP)

    my teacher always taught me

    if you debit the bank it goes up

    credit it and it goes down.....

    after that what ever it does to the bank its the opposite for what your working out

    does that make sense?

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