The school canteen prepares a purchases ledger control account each month from totals supplied by the bookkeeper. One of the items below belongs on the debi...
Question 1 Report
The school canteen prepares a purchases ledger control account each month from totals supplied by the bookkeeper. One of the items below belongs on the debit side of that account. Identify the item that is entered on the debit side.
Answer Details
A purchases ledger control account summarises everything owed to credit suppliers, so it behaves like one large trade payables account. Items that increase what is owed are credited, and items that reduce what is owed are debited. Its normal closing balance is a credit, since it is a liability.
Of the totals listed, discounts received belongs on the debit side. A cash discount reduces the amount that has to be paid to suppliers without any money passing, so the liability is written down and the control account is debited; the matching credit goes to the discount received income account in the general ledger.
Credit purchases for the month increase the amounts owed, so they are credited. Interest charged by a supplier on an overdue account adds to the debt, so it is also credited. The opening balance owed to suppliers is a liability brought forward, so it stands on the credit side as the balance brought down.
The dependable test for any control account item is to ask whether the business owes more or less after it. Note the mirror image with the sales ledger control account, where discounts allowed appear on the credit side because they reduce an asset rather than a liability.
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