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PART C: THE USE OF DOUBLE-ENTRY AND ACCOUNTING SYSTEMS 

 

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Solution 

(a) TRADE 

ACCOUNTS 

RECEIVABLE 

 

$  $ 

Sales a/c 

2,000

 

 

 

SALES ACCOUNT 

 

$  $ 

 

 

Trade accounts receivable a/c  

2,000

 

(b) 

TRADE ACCOUNTS PAYABLE  

 $ 

 $ 

  

Purchases 

a/c 

100 

 

PURCHASES ACCOUNT 

 $ 

 $ 

Trade accounts payable a/c 

100 

 

 

 

4.5.1 When cash is paid to suppliers or by customers  

What happens when a credit transaction is eventually settled? Suppose that, in the example above, the 

business paid $100 to B Inc one month after the goods were acquired. The two sides of this new 

transaction are: 

(a) 

Cash is paid (credit entry in the cash at bank account). 

(b) 

The amount owing to trade accounts payable is reduced (debit entry in the trade accounts 

payable account). 

CASH AT BANK ACCOUNT 

 $ 

 

$ 

 

 

Trade accounts payable a/c 

 

100 

TRADE ACCOUNTS PAYABLE  

 $ 

 

$ 

Cash a/c 

100 

 

 

 

If we now bring together the two parts of this example, the original purchase of goods on credit and the 

eventual settlement in cash, we find that the accounts appear as follows. 

CASH AT BANK ACCOUNT 

 $ 

 

$ 

 

 

Trade accounts payable a/c 

100 

 

PURCHASES ACCOUNT 

  $  $ 

Trade accounts payable a/c 

100 

 

 

 

BPP Tutor Toolkit Copy

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CHAPTER 5  

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  LEDGER ACCOUNTS AND DOUBLE ENTRY