learning unit 2

Debtors and Creditors Reconciliation

Introduction

• The bookkeeping cycle is nearing completion, transitioning from journal posting to the drafting of trial balances.

• Previously discussed: Bank Reconciliation.

• Current focus: Real-time updates for debtors' accounts when transactions occur.

• Debtors' transactions are recorded in the Debtors control account, reflecting total amounts owed by all debtors.

Control Accounts

• Debtors Control Account:

  • Accumulates individual debtor transactions; provides an overview of total debt owed to the business.

• Creditors Control Account:

  • Similar to debtors, it compiles individual transactions from creditors and shows the total amounts payable.

• Purpose of Control Accounts:

  • Ensure that individual accounts reconciled with their respective control accounts for accuracy.

Control Account System

• Monthly Procedures:

  • At the end of each month, creditor and debtor balances are compiled into lists.

  • Debtors Ledger: Balance of individual debtors compared to the Debtors control account.

  • Creditors Ledger: Balance of individual creditors checked against the Creditors control account.

  • The total amount on the creditors list should equal the creditors control balance.

Important Notes

• When handling individual accounts, always identify the name of the debtor or creditor in journals.

• Record all transactions accurately in respective individual accounts.

• Utilize total balances from individual accounts for preparing Debtors/Creditors control.

Debtors Ledger Preparation

• Components of Debtors Ledger:

  • Detailed record listing transactions related to each debtor, including balances owed.

Example Structure:

Debtors List

• List individual debtors alongside the amount owed.

  • Example:

    • Debtor 1: XXX

    • Debtor 2: XXX

    • Debtor 3: XXX

Creditors Ledger Preparation

• Components of Creditors Ledger:

  • Detailed record of all transactions related to each creditor, including outstanding balances.

Example Structure:

Creditors List

• List individual creditors with the corresponding amounts payable.

  • Example:

    • Creditor 1: XXX

    • Creditor 2: XXX

    • Creditor 3: XXX

Remittance Advice

• Definition: Accompanies payments to creditors; highlights adjustments needed based on erroneous statements received.

• Functions as proof of payment document sent from customers to businesses.

Remittance Advice Details

• Breakdown of amounts related to transactions:

  • Balance per statement: *****

  • Less: Overcharge (*****)

  • Less: Discounts omitted (*****)

  • Add: Invoice omitted *****

  • Less: Settlement omitted (*****)

  • EFT Payment (Must match creditors ledger balance)

Example Statement

• Debtor: D. Sithole

  • Details of transactions for D. Sithole as of 28 February 2018:

  • Various entries including goods purchased, payments made, and credit notes with balances noted.

• Key Findings:

  • Adjustments required based on discrepancies in statement versus accounts:

    • Overstatement: R15.00

    • Missed trade discount

    • Unrecorded invoices and misallocated payments/corrections.

Required Items

1. P. Pretorius's individual account in the creditors ledger

2. Creditors reconciliation statement