Chapter 10 Debtors and Creditors

Question 10.1 Suggested solution

1 Original debt = X
Therefore: X - 5%X = R2 736
95%X = R2 736
X = R2 736/95%
X = R2 880

2 Only the portion paid in cash will be refunded

Cash payment was: R5 850 × (100% - 15%)
= R 4,972.50

3 Percentage trading discount: R375 ÷ R7 500

= 5%
Correcting journal:
Sales 750.00
Debtors: S Absalom 750.00
(Recording of trade discount)

Debtors 750.00
Discount granted 375.00
Bank 375.00
(Correction for discount and refund of amount received, R7 125 was received
instead of R6 412.50)

From the above-mentioned journal the refund to S Absalom will be R712.50,

that represents the amount received before the trading discount was taken
into account,, R7 125 (R7 500 - R375 cash discount), and R6 412.50.
((R7 500 - 10% trade discount) - 5% cash discount))

4 Correcting journal:
Debtors 5,780.00
Discount granted 433.50
Bank 5,346.50
(Discount, debtor and returned cheque reversed)

5 End of month 1:
Debtor: H Sylvester 48.17
Interest income 48.17
(Interest for the first month, 10% x R5 780 x1/12)

Bank 2,890.00
Debtor: H Sylvester 2,890.00
(First instalment)

End of month 2:
Debtor: H Sylvester 24.08
Interest income 24.08
(Interest for the second month, 10% × 2 890 × 1/12)

Bank 2,890.00
Debtor: H Sylvester 2,890.00
(Second instalment)

Bank 72.25
Debtor: H Sylvester 72.25
(Settlement of interest raised)
6 Debtors
Opening 124,660 Bank 88,640
Sales (Balancing) 110,510 Discount granted 5,240
Discount granted 10,410
Closing balance 130,880
235,170 235,170

7 Journal for credit losses:

Allowance for credit losses 1,840
Debtors 1,840

Journal for the Allowance for credit losses:

The provision should be: 6,452 (R130 880 - R1 840) × 5%
Current provision: 3,160 (R5000 - 1840)
Adjustment therefore: 3,292

Credit Losses 3,292

Allowance for credit losses 3,292

If an allowance for credit losses was not made:

Journal for credit losses:
Credit Losses 1,840
Debtors 1,840

Journal for the Allowance for credit losses:

The provision should be: 6,452 (R130 880 - R1 840) × 5%
Current provision: -
Adjustment therefore: 6,452

Credit Losses 6,452

Allowance for credit losses 6,452
Chapter 10 Debtors and Creditors

Question 10. 2 Suggested solution

1 Debtors control account

1-Sep Opening balance R 37,475 30-Sep Bank and allowance R 66,576 #
30-Sep Sales R 85,291 Credit losses R 1,580
R/D Cheques R 484 Returns (sales) R 2,688
Interest raised R 54
Balance c/d R 52,460
R 123,304 R 123,304
1-Oct Balance b/d R 52,460

Creditors control account

30-Sep Bank R 25,671 1-Sep Opening balance R 15,856
Returns (purchases) R 2,000 30-Sep Purchases R 46,451

Balance c/d R 34,636

R 62,307 R 62,307
1-Oct Balance b/d R 34,636

* Note that the credit losses recovered are not shown here. The entry will be dr bank and cr
credit losses recovered (Income)

# The original entries of the sales to debtors would have been as follows:
Dr Debtors control "full amount"
Cr Sales " full amount minus discount"
Cr Allowance for settlement discount " Discount"

If discount was taken, it means that debtors did pay in time therefore:
Dr Bank " full amount minus discount"
Dr Allowance for settlement discount " Discount"
Kr Debtors control "full amount"

Therefore the credit entry to debtors has to include the amount received plus the discount.

2a) Debtors R 250

Sales R 250

b) Sales R 550
Debtors R 550

c) Purchases R 50
Creditors R 50

d) Debtors R 375
Creditors R 375

e) Creditors R 240
Purchases R 240

3 Debtors control account

Balance b/d R 52,460 Adjustment (2b) R 550
Adjustment (2a) R 250
Adjustment (2d) R 375 Adjusted balance c/o R 52,535
R 53,085 R 53,085
Adjusted balance b/d R 52,535

Creditors control account

Adjustment (2e) R 240 Balance b/d R 34,636
Adjustment (2c) R 50
Adjusted balance c/o R 34,821 Adjustment (2d) R 375
R 35,061 R 35,061
Adjusted balance b/d R 34,821
Chapter 10 Debtors and Creditors

Question 10.3 Suggested solution

Debtors control account

1-Mar Balance b/d 1,260 31-Mar Returns in 400
31-Mar Sales (40043-2750) 37,293 Bank (cash received from
Interest charged 1,043 debtors) 22,410
R/D Cheque 1,850
Balance c/d 18,636
41,446 41,446
1-Apr Balance b/d 18,636

* The allowance for credit losses and the allowance for settlement discount are shown in a
separate accounts. The balances of these allowances would be subtracted from the
debtors account and the net amount (Debtors control less allowance for credit losses and
settlement discount) only will appear on the face of the statement of financial position.
The allowances might therefore be seen as a credit in the debtors account
as it reduces the balance of the debtors account.

** Note that the entries that are applicable on the Creditors Control Account were not shown
Debtors Control Account. (Purchases and Discount Received)

*** Note that the general rule of an asset is applicable on Debtors Control, since the debit entries
increase the account and that its balance is reduced by credit entries.
Chapter 10 Debtors and Creditors

Question 10.4 Suggested solution

Debtors control account

1-Oct Balance b/d 25,173 1-Oct Returns in 141
31-Oct Sales - credit 35,307 Allowance for settlement disc 57
Refunds on overpayments Bank 43,179
by debtors 84
Transfer from creditors
Interest - overdue accounts 2,823 Balance c/d
105 20,115
63,492 63,492
1-Nov 20,115

2 The balance according to the debtors ledger should balance with the balance of the
Debtors Control Account in the General Ledger. The reconciling item will therefore
represents the difference:

Total of debtors ledger X

Less: Balance in general ledger R 63,492
Should be: R 720 (R910 - R190)

Find X: R20 115 + R720 = R20 835.

(which makes sense as the balance in the debtors ledger is R720 too much)
Chapter 10 Debtors and Creditors

Question 10.5 Suggested Solution

Debtors control account

1-Sep Opening balance 81,552 30-Sep Returns 6,204
30-Sep Sales - credit 187,968 Bad debts 1,848
R/D cheques 2,652 Allow: settlement disc. 23,508
Interest charged 120 Bank 150,600
Creditors 300 Balance c/d 90,432

272,592 272,592
1-Oct Balance b/d 90,432
Question 10.6 Suggested solution

B. Buys R
Balance according to the ledger 5,000
Interest not yet recorded 400
Balance according to the creditor's statement 5,400
Disclose 5,400

Senwes R
Balance according to the ledger 50,000
Invoiced in advance 5,000
Balance according to the creditor's statement 55,000
Disclose 50,000

ABC Limited R
Balance according to the ledger 25,000
Credit note according to ABC -200
Credit note according to JunieBrou 250
Balance according to the creditor's statement 25,050
Disclose 25,050
Chapter 10 Debtors and Creditors

Question 10. 7 Suggested solution

1 Purchases returns and allowances 160

Debtors 160

2 Bank 350
Credit losses recovered 350

3 Allowance for credit losses 175

Credit losses 175

Calculation of the provision for credit losses:

Debtors control - provided 18,660
Credit note - Purchases returns & allow. -160
18,500

Allowance: C/L (5% × R18 500) 925

Current balance 1,100
Reduce balance with -175
Dr ALLOWANCE FOR CREDIT LOSSES (The normal balance of the allowance is cr.)

Note that credit losses recovered doesn't influence Debtors and will therefore not be taken into account
when the Allowance for Credit losses is calculated.
n into account
Chapter 10 Debtors and Creditors

Question 10.8 Suggested solution

Debtors control account

1/3/99 Opening balance 20,000 28/2/00 Returns 5,000
28/2/00 Credit sales 224,000 Credit losses 30,000
R/D cheques received 2,250 Allowance for settlement 210
Interest charged 1,800 Cash received 160,000
Balance c/d 52,840
248,050 248,050
1/3/00 Balance b/d 52,840 28/2/01 Returns 4,480
28/2/01 Credit sales 235,200 Credit losses 31,500
R/D cheques received 2,363 Allowance for settlement 221
Interest charged 1,890 Cash received 217,992
Balance c/d 38,100
292,293 292,293
1/3/01 Balance b/d 38,100 28/2/02 Returns 5,200
28/2/02 Credit sales 246,923 Credit losses 33,070
R/D cheques received 2,480
Interest charged 1,984 Allowance for settlement 231
Cash received 176,386
Balance c/d 74,600
289,487 289,487
1/3/03 Balance b/d 74,600

Allowance for credit losses

28/2/00 Balance c/o - 1/3/99 Opening balance -
- -
1/3/00 Balance b/d -
28/2/01 Balance c/d 7,500 28/2/01 Credit loss 7,500
7,500 7,500
28/2/02 Credit losses 3,770 1/3/01 Balance b/d 7,500
Credit loss
Balance c/d 3,730 (R74600 × 5%) 3,730
11,230 11,230
1/3/02 Balance b/d R 3,730

Credit losses
28/2/00 Debtors 30,000 28/2/00 Profit & loss 30,000
Allowance for credit loss 7,500
28/2/01 Debtors 31,500 28/2/01 Profit & loss 39,000
Allowance for credit loss 3,770
28/2/02 Debtors 33,070 28/2/02 Profit & loss 29,300
Dr Bank
Dt Allowance
Cr DC

Dr Bank
Dt Allowance
Cr DC

Dr Bank
Dt Allowance
Cr DC
Chapter 10 Debtors and Creditors

Question 10.9 Suggested solution

a) Debtors turnover rate = Credit Sales

Avg debtors

20.1: (R58 000 - R1 500)

(R10 000 + R11 000)/2

= 5.38 times

20.2: (R63 000 - R2 500)

(R11 000 + R12 000)/2

= 5.26 times

b) The decrease in the debtors turnover is not to the benefit of the business because
the number of times debtors were recovered per year decreased.

c) Debtors recovery period = Avg Debtors × 365 days

Credit Sales

2001: (R10 000 + R11 000)/2 × 365 days

(R58 000 - R1 500)

= 67.83 days

2002: (R11 000 + R12 000)/2 × 365 days

(R63 000 - R2 500)

= 69.38 days

d) The credit terms states that a 5% discount would be granted if outstanding debt is settled
within 30 days.
It is evident that the recovery of debt is not successful since it takes 69 days to recover
debt. (instead of 30 days)
Chapter 10 Debtors and Creditors

Question 10 .10 Suggested solution

a) Sales Journal/Debtors journal

b) CPJ/ Cashbook - payments
c) General Journal
d) Sales Returns Journal/Debtors Return journal
e) General Journal
f) General Journal
g) CRJ/Cashbook - receipts
Chapter 10 Debtors and Creditors

Question 10.11 Suggested solution

R
Balance per ledger at 24 February 15,500
Opening balance - still owed at 24 Feb -
Trade discount allowed (Inv 2323) -790
Invoice 7080 double accounted for (only in GL)
Invoice 9898 (goods already received) 10,000
Invoice- incorrect on statement -630
Credit note 689 -1,760
22,320

General ledger Creditor's ledger

Dr Cr Dr Cr
Dr Creditors 790 790
Cr Purchases/Inventory 693
Cr Input VAT 97
Dr Creditors 4,500 -
Cr Purchases/Inventory 3,947
Cr Input VAT 553
Dr Purchases/Inventory 8,772
Dr Input VAT 1,228
Cr Creditors 10,000 10,000
Dr Creditors 1,760 1,760
Cr Purchases/Inventory 1,544
Cr Input VAT 216
Chapter 10 Debtors and Creditors

Question 10.12 Suggested solution

Akad Distributors
Cash receipts journal - February 20.3
Date Doc Details Fol. Bank Debt. Sales VAT Sundry Details
28 Totals 90,500 33,000 50,000 7,500
B/S Bank 100 100 Interest received
C/R Sundry sales 10,200 8,870 1,330
Rec. Debtors 18,000 18,000
118,800 51,000 58,870 8,830 100

Akad Distributors
Cash payments journal - February 20.3
Date Doc. Details Fol. Bank Cred. Debt. Purchases VAT Sundry Details
28 Totals 81,755 33,000 800 41,700 6,255
B/S Bank 270 35 235 Bank charges
Bank (R/D) 460 460
82,485 33,000 1,260 41,700 6,290 235

Akad Distributors
Debtors List
Balance on 28/2/20.3 57,560
Credit note 55 corrected (R400 × 4) -1,600
Incorrectly totalled 500
56,460

Debtors control
Balance b/f 27,400 Sundry receipts CRJ 51,000
Sales 88,000 Sales returns SRJ 9,200
Sundry debtors CPJ 1,260 Balance c/f 56,460
116,660 116,660
Balance b/f 56,460
Question 10.13 Suggested solution

Accounting policy
The company maintains an allowance for credit losses on an aggregate basis at a level it
considers sufficient to cover estimated losses in the collection of its finance receivables. The
allowance for credit losses is based primarily upon historical credit loss experience, with
consideration given to recent credit loss trends and changes in loan characteristics
(i.e., average amount financed and term), delinquency levels, collateral values, economic
conditions, underwriting and collection practices, and management’s expectation of future
credit losses. The allowance for credit losses is periodically reviewed by management with
any changes reflected in current operations. Although it is at least reasonably possible that
events or circumstances could occur in the future that are not presently foreseen which could
cause actual credit losses to be materially different from the recorded allowance for credit
losses, the company believes that it has given appropriate consideration to all relevant factors
and has made reasonable assumptions in determining the allowance for credit losses.
Chapter 10 Debtors and Creditors

Question 10.14 Suggested solution

Account Equity Assets Liabilities

No. Dr(-) Cr(+) Dr(+) Cr(-) Dr(-) Cr(+)
a) Dr Debtors control R 50,000
Cr Allowance for settlement discount R 2,500
Cr Sales R 47,500

Dr Bank R 47,500
Dr Allowance for settlement discount R 2,500
Cr Debtors control R 50,000

b) Dr Debtors control R 50,000

Cr Allowance for settlement discount R 2,174
Cr Output VAT R6,522
Cr Sales R 41,304

Dr Bank R 47,500
Dr Allowance for settlement discount R 2,174
Dr Output VAT R 326
Cr Debtors control R 50,000

c) Dr Debtors control R 50,000

Cr Allowance for settlement discount R 2,500
Cr Sales R 47,500

Dr Bank R 50,000
Dr Allowance for settlement discount R 2,500
Cr Sales R 2,500
Cr Debtors control R 50,000
Chapter 10 Debtors and Creditors

Question 10.15 Suggested solution

General journal - April 20.8 GENERAL DEBTORS CREDITORS

Dr Cr Dr Cr Dr Cr
Totals 78 420 174 135 203 196

1. S. Desmond 7 7
Provision for discount/interest received 7
3. Ajax 45
4. M Simon 125 125
M Simon 125 125
5. Bank 81
Vehicle cost 81
6. Inventories 39
Withdrawals 39
7. K Mostert 165 165
Rent received 165
8. A Park 30 30
Interest received 30
9. H Adams 50 50
H Allen 50 50
10 Donations 132
Inventories 132

707 1049 551 185 203 366

General Ledger for Dundee

Debtors control account
Apr 20.8 Balance b/f(7492-218) 7,274 30-Apr Bank and discount 4,320
Sales 7,018 Debtors discount 462
Bank ( v/t) (217+75) 292 Journal cr 185
Journal dr 551 Balance b/d 10,168
15,135 15,135
1-May Balance b/f 10,168

Creditors control account

30-Apr Bank and discount 6,843 1-Apr Balance 9,262 (9654 - 392)
Sund acc and discount 1,063 Sundry purchases 9,874
Journal dr 203 Bank (473 + 95) 568
balance b/d 11,961 Journal cr 366
20,070 20,070
1-May Balance 11,961

Debtors
OB 7,274
Sales 7,018
Returns -462
Bank -4,320
RD cheque 292
9,802
551
-185
10,168

Creditors
OB 9,262
Purch 9,874
Returns -1,063
Bank -6,843
Debit bal 568
11,798
366
-203
11,961
Chapter 10 Debtors and Creditors

Question 10.16 Suggested solution

Damon Camera Centre

General Journal
20.7
Dec 3 Rayton Camera Shop/Debtor's control (1000 × 1.15) 1,150
VAT output (1000 × 15%) 150
Sales (1000 × 98%) 980
Allowance for settlement discount (debtors) (1000 × 2%) 20
Sell goods on credit
5 Purchases (2700 × 98%) 2,646
Allowance for settlement discount (creditors) (2700 × 2%) 54
VAT input (2700 × 15%) 405
Zenex Corporation/Creditor's control (2700 × 1.15) 3,105
Buys goods on credit
6 Tabin Manufacturers/Creditors control 7,400
Bank (7400 × 95%) 7,030
Allowance for settlement discount (creditors) (7400/1.15 × 5%) 322
Input VAT (322 × 15%) 48
Settle November account. Discount of 5% is allowed by
the creditor. VAT of 15% is accounted on the discount
7 Bank 6,118
Sales (5600 × 95%) 5,320
VAT output (5320 × 15%) 798
Cash sales for the week at 5% discount
14 Bank 4,370
Sales 3,800
VAT output (3800 × 15%) 570
Cash sales for the week
15 Zenex Corporation/Creditors control 3,105
Bank (3105 × 98%) 3,043
Allowance for settlement discount (creditors) 54
VAT input (405 × 2%) 8
Settle invoice dated 5 December. Discount of 2% is allowed by
the creditor. VAT of 15% is account for on the settlement discount
16 Allowance for settlement discount (5200/1.15 × 2%) 90
Sales 90
Bank 5,200
Rayton Camera Shop/Debtors control 5,200
Receive payment from Rayton Camera shop for December
account and cancel the allowance for settlement discount
17 Laete Studios/Debtors control (4200 × 1.15) 4,830
Sales 4,200
Output VAT (4200 × 15%) 630
Sold goods on credit.
21 Bank 3,114
Sales (2850 × 95%) 2,708
VAT output (2708 × 15%) 406
Cash sales for the week at 5% discount
22 Jays Photo services/Debtors control (900 × 98% = 882 × 1.15) 1,014
VAT output (882 × 15%) 132
Sales (882 × 99%) 873
Allowance for settlement discount (debtors) (882 × 1%) 9
Credit sales of 2% discount. Terms of the settlement discount
is on invoice
23 Purchases (5200 × 95%) 4,940
Allowance for settlement discount (creditors) (5200 × 5%) 260
Input VAT (5200 × 15%) 780
Tabin Manufacturers/Creditor's control (5200 × 1.15) 5,980
Buys goods on credit. Terms of the settlement discount is on
the invoice
24 Sales returns/Sales (300 × 99%) 297
Allowance for settlement discount (debtors) (300 × 1%) 3
Output VAT (300 × 15%) 45
Jays Photo Services/Debtors control (300 × 1.15) 345
Damaged cameras sent back
31 Bank (4830 × 99%) 4,782
Sales (4830/1.15 = 4200 × 1%) 42
Output VAT (42 × 15%) 6.30
Laete Studios/Debtors control (see 17th) 4,830
Receipt of settlement of invoice dated 17 December.
Discount of 1% is allowed. VAT at 15% is accounted on the
settlement discount.
Chapter 10 Debtors and Creditors

Question 10.17 Suggested solution

Green Fingers
General Journal
20.6
Jan 2 A Apple 2,750
Output VAT (275 × 15/115) 359
Sales (2750 - 359 = 2391 × 98%) 2,343
Allowance for settlement discount (Debtors) (2391 × 2%) 48
Sell goods on credit
5 Sales returns (330/1.15 = 287 × 98%) 281
Allowance for settlement discount (Debtors) (287 × 2%) 6
Output VAT (330 - 287) 43
A Apple 330
Damaged goods sent back
5 Purchases (3630/1.15 = 3157 × 95%) 2,999
Allowance for settlement discount (Creditors) (3157 × 5%) 158
Input VAT (3630 - 3157) 473
Value Vegetables 3,630
Buys goods on credit. Terms of the settlement discount is on
the invoice
6 Value Vegetables 440
Purchase returns (440/1.15 = 383 × 95%) 363
Allowance for settlement discount (Creditors) (383 × 5%) 19
Input VAT (440 - 383) 57
Goods sent back
10 Value Vegetables 2,200
Bank (2200 × 95%) 2,090
Purchases (2200/1.15 = 1913 × 5%) 96
Input VAT (96 × 10%) 10
Settle December account. Discount of 5% from creditor
allowed. VAT at 15% on the settlement discount
16 Allowance for settlement discount (Debtors) (5500/1.15 × 2%) 96
Sales 96
Bank 5,500
A Apple 5,500
Receive payment from A Apple for December account and cancel
allowance for settlement discount
18 B Banana (4950 × 90%) 4,455
Output VAT (4455 × 15/115) 581
Sales (4455 - 581 = 3874 × 99%) 3,835
Allowance for settlement discount (Debtors) (3874 × 1%) 39
Credit sales after 10% trade Discount. Terms of settlement
discount is on the invoice
25 Purchases (7700/1.15 × 1%) 67
Allowance for settlement discount (Creditors) 67
Fresh Fruit 7,700
Bank 7,700
Settle Fresh Fruit's account for December and cancel
allowance for settlement discount
25 Bank 4,400
B Banana 4,400
B Banana pays his account
31 Bank (2750 - 330 = 2420 × 98%) 2,372
Allowance for settlement discount (Debtors) (48 - 6) 42
Output VAT (42 × 15%) 6
A Apple (2750 - 330) 2,420
Discount 2% is allowed for payment by A Apple for January
account. VAT at 15% is accounted for on the discount