Learning Outcomes
After studying this article, you will be able to explain the purpose of the payables ledger and control account, identify how transactions are posted from day books and the cash book, distinguish between individual supplier accounts and the control account, and apply effective procedures for reconciliation and error correction—key skills for the ACCA FA1 exam.
ACCA Recording Financial Transactions (FA1) Syllabus
For ACCA Recording Financial Transactions (FA1), you are required to understand the process of recording, managing, and reconciling amounts owed to suppliers. This article covers:
- The main types of transactions processed in the payables ledger (credit purchases, payments, purchase returns, discounts)
- Posting of transactions from purchases day book, returns day book, and cash book to the payables ledger and control account
- The structure and purpose of the payables ledger and payables control account
- Reconciliation processes between the payables ledger and control account
- Identification and correction of errors in postings
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- Which document is the primary source for posting credit purchases to the payables ledger?
- True or false? Payments to suppliers reduce the balance on both the individual supplier accounts and the payables control account.
- Why is it important to reconcile the payables control account with the total of supplier balances in the payables ledger?
- A supplier issues a credit note for returned goods. How should this be reflected in the payables ledger and control account?
Introduction
A business often buys goods and services on credit from various suppliers. Accurate recording of what is owed is essential for effective cash management and financial reporting. This is achieved using the payables ledger for tracking individual supplier balances, and the payables control account for summarising the overall liability in the general ledger. Posting and reconciliation processes ensure that both the detailed and summary records are accurate and that errors can be quickly identified and corrected.
Key Term: payables ledger
A record containing individual accounts for each credit supplier, detailing transactions and outstanding balances owed to each supplier.Key Term: payables control account
A summary account in the general ledger showing the total amount owed by the business to all credit suppliers, compiled by posting totals from source books.
PAYABLES LEDGER AND CONTROL ACCOUNT – STRUCTURE AND PURPOSE
Every business that buys on credit needs to maintain detailed records of what it owes to each supplier and a summary of the total amount owed. The payables ledger (sometimes called the purchase ledger) contains an account for each supplier. The payables control account, found in the general ledger, gives a summary total that should match the combined balances of the individual supplier accounts.
Key Term: purchases day book
The book of prime entry used to record all credit purchases before posting to the ledgers.Key Term: cash book
The book of prime entry that records all payments and receipts made via cash or bank, including payments to suppliers.
Posting to the Payables Ledger (Individual Accounts)
Each transaction with a supplier—credit purchases, purchase returns, payments, and discounts received—is recorded in the relevant supplier’s account. This allows the business to see at a glance the balance outstanding with any individual supplier.
Posting to the Payables Control Account
Instead of posting every transaction individually, the control account is updated by totals from the day books and cash book for a period (often monthly). Each total represents the sum of all such transactions affecting payables during that period.
POSTING FROM DAY BOOKS AND CASH BOOK
Purchases Day Book
All credit purchases are first entered into the purchases day book. The total for a period is credited to the payables control account and also credited to each relevant supplier’s account in the payables ledger.
Purchase Returns Day Book
If goods are returned to suppliers, such returns are recorded in the purchase returns day book. The period’s total is debited to the payables control account and debited to the relevant supplier accounts.
Cash Book
Payments to suppliers, including settlements and discounts received, are recorded in the cash book. The total of payments is debited to the payables control account and debited to each supplier’s account as appropriate.
Key Term: reconciliation
The process of comparing and matching two sets of records to ensure their figures agree, identifying and resolving any differences.
RELATIONSHIP BETWEEN THE PAYABLES LEDGER AND CONTROL ACCOUNT
The payables control account is designed to provide an independent check on the total outstanding to all suppliers. If the control account’s closing balance matches the sum of the balances of all individual supplier accounts, this gives some assurance that both ledgers are accurate.
Worked Example 1.1
A business has the following transactions in May:
- Credit purchases: $9,000
- Purchase returns: $800
- Payments to suppliers: $6,750 (including a $200 discount received)
- Balance at the start of the month (owed to suppliers): $2,200
Required: Show the posting to the payables control account for May.
Answer:
- Opening balance: $2,200 (credit)
- Add credit purchases: $9,000 (credit)
- Less purchase returns: $800 (debit)
- Less payments: $6,750 (debit)
- Less discount received: $200 (debit)
Closing balance: $2,200 + $9,000 – $800 – $6,750 – $200 = $3,450 owed to suppliers.
Worked Example 1.2
A supplier sends a credit note for $350. How is it posted?
Answer:
The purchase returns day book total increases by $350, which is then debited to the payables control account and to the supplier’s account in the payables ledger, reducing the liability owed.
RECONCILIATION AND ERROR IDENTIFICATION
Reconciling the payables control account with the total of the payables ledger highlights errors such as omissions, double postings, misallocations, or fraudulent entries.
Exam Warning
Don’t assume all discrepancies are errors—timing differences such as unposted credit notes or unprocessed payments may temporarily cause a mismatch.
Worked Example 1.3
The payables control account shows $12,200 but the total of the supplier accounts is $12,150. What could cause the $50 difference?
Answer:
Possible reasons include a $50 payment posted to the supplier account but omitted from the control account, or an error in posting a credit purchase, payment, or return in one record but not the other.
ERROR CORRECTION
Common posting errors include:
- Entering a transaction only in the control account or only in the payables ledger
- Recording incorrect values
- Omitting purchase returns or discounts received
- Posting to the wrong supplier account
When reconciliation reveals a difference, investigate recent transactions to pinpoint and correct the error.
Revision Tip
Always reconcile the payables control account to the total of individual balances before preparing a trial balance.
Summary
The payables ledger provides details of amounts owed to each supplier, while the payables control account summarizes total supplier balances. Transactions are posted from day books and cash book to both records. Reconciliation ensures accuracy, detects errors, and supports correct financial reporting.
Key Point Checklist
This article has covered the following key knowledge points:
- Define the payables ledger and payables control account
- Explain posting procedures from the day books and cash book
- Distinguish between individual supplier accounts and the control account
- Reconcile the control account with the payables ledger total
- Identify and correct common posting errors
Key Terms and Concepts
- payables ledger
- payables control account
- purchases day book
- cash book
- reconciliation