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In which book of prime entry do i record invoices received?
Purchases day book (also called the payables day book).
This is all explained in my free lectures on the books of prime entry.
Please help me out:
-Anthony receives goods from Brad on credit terms and Anthony subsequently pays by cheque. Anthony then discovers that the goods are faulty and cancels the cheque before it is cashed by Brad.
How should Anthony record the cancelation of the cheque in his books?
A. Debit Accounts payable. Credit Returns Outwards
B. Debit Bank. Credit Accounts payable(Please explain both A and B, i.e does option B mean a cash refund from a credit supplier?)
I don’t know if this qn is relevant here but I would really appreciate your reply. Thank you
A would be if Anthony had returned goods.
B is when we had recorded the receipt and then discovered that we had not actually received the money and so cancelled the entry.
Thank you, I understand now. However, can’t option B mean a cash refund from credit supplier?
And the answer to this question is A. What if the question asked about the accounting entry to record the cancellation of the cheque AFTER it had been recorded and cashed by the supplier? Would the answer be B then?.. thanksIt certainly isn’t a cash refund by anybody.
Also, if the supplier has already cashed the cheque (i.e. paid it into the bank) then it is not possible for the cheque to then be cancelled.
Oh ok, thank you. Therefore, what would be the double entry for a cash refund from a trade payable?
Exactly! I asked before if option B (“Dr bank Cr accounts payable”) meant a cash refund from a credit supplier but you said it didn’t mean that ,but I was right. Pls correct me if I’m wrong
It could mean that, but I was answering on the basis of what the question you typed asked for.
Oh alright. So can the cash refund be for, example, goods returned to a credit supplier which had been previously paid for? i.e. for the goods paid previously purchased on credit we would: dr payable, cr cash…therefore a cash refund for the goods returned would be the opposite entry
I want to clear my doubt about this concept. I will really appreciate your response
When the goods are purchased we Dr Purchases and Cr Payables
When payment is made we Dr Payables and Cr Cash (the balance on payables is then zero).
If the goods are returned, we Dr Payables and Cr Purchases (there is now a debit balance on payables).
When the supplier gives us a refund, we Dr Cash and Cr Payables (the balance on payables is now zero and all is OK).
If we buy lots of times from the same supplied then they might not refund the cash and so the last entry does not happen. Instead, the amount paid for the next purchase is less because of the debit balance there was on payables.
For the last entry, when the supplier gives a refund (for goods previously returned), won’t the balance on the supplier account be zero?
Because, when goods were returned we debited the account and for the refund the same account will be credited. So, according to what I understand, when there is a cash refund for goods previously returned there will be no balance on the payable’s account. Cash refund will eliminate the debit balance. Correct me if I’m wrong
You are correct, and that’s what I wrote in my previous reply but the auto-correct changed ‘now’ to ‘not’ 🙂
I have now corrected the spelling.
No problem. I now understand, thank you very much for all the clear explanation
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