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

 

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RENT ACCOUNT 

 $ 

 

$ 

Cash at bank a/c 

150  

 

(c) 

The two sides of the transaction are: 

(i) 

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

(ii) 

Purchases increase by $100 (debit entry in the purchases account). 

CASH AT BANK ACCOUNT 

 $ 

 

$ 

  

Purchases 

a/c 

100 

PURCHASES ACCOUNT 

 $ 

 

$ 

Cash at bank a/c 

100 

 

 

 

(d) 

The two sides of the transaction are: 

(i) 

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

(ii) 

Assets – in this case, shelves – increase by $200 (debit entry in shelves account). 

CASH AT BANK ACCOUNT 

 $ 

 

$ 

  

Shelves 

a/c 

200 

SHELVES (ASSET) ACCOUNT 

 $ 

 

$ 

Cash at bank a/c 

200 

 

 

 

4.4 Credit transactions 

Some accounts in the nominal ledger represent the total of very many smaller balances. For example,  

the trade accounts receivable account represents all the balances owed by individual customers of the 

business, while the trade accounts payable account represents all money owed by the business to its 

suppliers.  

As we have seen already, not all transactions are settled immediately in cash or by cheque or credit 

card. A business can purchase goods or non-current assets on credit terms, so that the suppliers would 

be trade accounts payable until settlement was made in cash. Equally, the business might grant credit 

terms to its customers who would then be trade accounts receivable of the business. Clearly no entries 

can be made in the cash book when a credit transaction occurs, because no cash has been received or 

paid, so where can the details of the transactions be entered? 

The solution to this problem is to use trade accounts receivable and trade accounts payable accounts. 

When a business acquires goods or services on credit, the credit entry is made in an account designated 

'trade accounts payable' instead of in the cash at bank account. The debit entry is made in the 

appropriate expense or asset account, exactly as in the case of cash transactions. Similarly, when a sale 

is made to a credit customer the entries made are a debit to the total trade accounts receivable account 

(instead of cash at bank account) and a credit to sales account. 

4.5 Example: credit transactions 

Recorded in the sales day book and the purchase day book are the following transactions. 

(a) 

The business sells goods on credit to a customer Mr A for $2,000 

(b) 

The business buys goods on credit from a supplier B Inc for $100 

How and where are these transactions posted in the ledger accounts? 

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