Page 172 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 12

Payables, provisions and contingent

liabilities

2.1 Cash and credit purchases

If an entity makes a purchase of goods or services for cash, it will pay for the goods
at the point of sale. The accounting entries required to record this transaction are:

Debit Purchases/expense

Credit Cash

If the purchase is made on credit the entity will typically pay for goods 30-60 days
following receipt of the goods. Applying the accruals concept, the purchase is
recorded when the goods are delivered. The expense is recorded along with a
corresponding liability that represents the commitment to pay. The liability is referred
to as a ‘payable’. The accounting entries required to record this are:

Debit Purchases/expenses

Credit Payables

When the entity subsequently makes payment, the obligation is cleared with the
following accounting entries.

Debit Payables

Credit Cash

Often, within the double-entry accounting system, a single total or control account is
maintained of all amounts due to credit suppliers (referred to as a trade payables’
control account) with a separate memorandum record maintained of amounts due to
individual credit suppliers (referred to as a trade payables’ ledger).

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