I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

75 

TRADE ACCOUNTS PAYABLE  

  $  $ 

Cash at bank a/c 

100 

Purchases a/c 

100 

 

The two entries in trade accounts payable cancel each other out, indicating that no money is owing to 

suppliers any more. We are left with a credit entry of $100 in the cash at bank account and a debit 

entry of $100 in the purchases account. These are exactly the same as the entries used to record a cash 

purchase of $100 (compare example above). This is what we would expect: after the business has paid 

off its trade accounts payable, it is in exactly the same position as if it had made a cash purchase, and 

the accounting records reflect this similarity. 

Similar reasoning applies when a customer settles their debt. In the example above, when Mr A pays his 

debt of $2,000 the two sides of the transaction are: 

(a) 

Cash is received (debit entry in the cash at bank account) 

(b) 

The amount owed by trade accounts receivable is reduced (credit entry in the trade accounts 

receivable account) 

CASH AT BANK ACCOUNT 

 $   $ 

Trade accounts receivable a/c 

2,000 

 

 

TRADE ACCOUNTS RECEIVABLE 

 $   $ 

 

 

Cash at bank a/c 

2,000

 

The accounts recording this sale to, and payment by, Mr A now appear as follows. 

CASH AT BANK ACCOUNT 

 $   $ 

Trade accounts receivable a/c 

2,000 

 

 

 

SALES ACCOUNT 

  

$   $ 

 

 

Trade accounts receivable a/c 

2,000

 

TRADE ACCOUNTS RECEIVABLE 

 $   $ 

Sales a/c 

2,000 

Cash at bank a/c 

2,000

 

The two entries in trade accounts receivable cancel each other out, while the entries in the cash at bank 

account and sales account reflect the same position as if the sale had been made for cash (see above). 

Now try the following questions.