GRADE 9 EMS

TOPIC 1: FINANCIAL LITERACY

CREDIT TRANSACTIONS
Transactions are the building blocks of our accounts. Any transactions that occur within our business
should be present in our accounting records.
There are many different types of transactions to keep track of such as sales, purchases, and even more. A
regular point of confusion that we come across when we talk to small businesses about their accounts is
the difference between cash and credit transactions. So, what is the difference?
The only difference between cash and credit transactions is the timing of the payment. A cash
transaction is a transaction where payment is settled immediately. On the other hand, payment for a
credit transaction is settled at a later date.
Try not to think about cash and credit transactions in terms of how they were paid, but rather, when they
were paid. For example, you may buy some groceries at your local shop and pay for them in cash there
and then, that’s a cash transaction. However, what if you paid by card rather than cash? That can also be
classified as a cash transaction because you paid immediately.
On the other hand, credit transactions are paid at a later date than when the exchange of goods or
services took place and almost all of time an invoice for
the transaction is issued. The time period before payment
can vary depending on the types of businesses or even the
industry in which the transaction is taking place. Once again,
when payment is finally settled for the invoice, it may be
done with cash or card, or any other payment method but it
is still a credit transaction.
Businesses will have a mixture of cash and credit transactions
make up their accounting records. Some businesses may
have the majority of their transactions be either one or the
other and some will have a more even split. However, you
would be hard pressed to find a business that didn’t have at
least one cash or credit transaction occur during its lifetime.
Along with whether a transaction is classified as cash or
credit another category is used to classify basic accounting
transactions. We also need to know whether or not it is a sale, purchase or payment. This gives us a list of
basic transactions:
1. Cash sale
2. Credit sale
3. Cash purchase
4. Credit purchase
5. Cash payment
6. Credit payment
Some of these, like cash and credit sales as well as credit purchases are more common that the others but
depending on what type of transaction we have, we can find a home for it in our accounts.

Debtors Credit sales

Debtors are normally first recorded in the Sales Ledger which contains a personal account for each
customer. In this way a listing of the sales ledger accounts will give you a listing of outstanding debts or
debtors.

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If for example, sales are made on credit to Customer A for R200 and Customer B for R400 the first entry
would be to the sales day book to record the sales.

The next entry would be to the Sales Ledger to record the Debtors to the personal accounts of each
customer.

Finally the double entry posting would be the total from the sales day book and the sales ledger.

Account Debit Credit

Debtors Control Account 600
Sales 600
Total 600 600

Debtors
Debtors are amounts which are owed to you by your customers, they are sometimes referred to as
Accounts Receivable.
When you allow your customer credit and invoice them for a product or service and receive payment at a
later date 30 days 60 days etc, then while they owe you the money they are classified as a debtor.
Debtors are recorded in the balance sheet of the business under the heading Current Assets, that means
they are convertible into cash within a year.

CREDIT SALES OF MERCHANDISE

A credit sale transaction takes place when goods are sold and delivered by a customer and the money is
received by the trader at a later date.

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Source document:
Invoice- the debtor takes the original invoice and the business keeps the duplicate.
Journal:
DJ

RECORDING PAYMENTS FROM DEBTORS

The debtor will have to settle his debt to the business because he/she purchased merchandise on credit.

Source document:
The debtor is given the original receipt and a copy is kept in the receipt book.
The duplicate receipt serves as the internal source document.
Journal:
CRJ

Example

Instruction
Use the CRJ and the DJ gven below to post to the Debtors Ledger and General Ledger of Crowder
Traders.

The following balances appeared in the books of Crowders Traders on 1 September 2013:
S.Soomar (D1) R1 176
J.du Preez (D2) R 846

Debtors Control (B10) R2 022

Debtors Control (B10) R2 022

CROWDERS TRADERS
DEBTORS JOURNAL –SEPTEMBER 2013
Inv. No. Day Debtors Folio Sales Cost of sales
140 7 S.Soomar D1 240 200
141 12 J.du Preez D2 60 50
142 12 S.Soomar D1 216 180
516 430
B10/N1 N2/B9

CROWDER TRADERS
CASH RECEIPTS JOURNAL – SEPTEMBER 2013

Doc. No. Day Details Fol. Analysis of Bank Sales Cost of Debtors
Receipts sales Control

R86 3 S.Soomar D1 1 176 1 176

CRT 67-70 Sales 3 360 4 536 3 360 2 800
R87 7 J.du Preez D2 360 360 360
R88 21 J.du Preez D2 486 486
CRT 71-80 Sales 3 800 4 286 3 800 3 166
9 182 7 160 5 966 2022
N1 N2/B6 B7

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DEBTORS LEDGER OF CROWDER TRADERS – SEPTEMBER 2013

Date Details/Doc.No. Folio Debit Credit Balance

Suhail Soomar D1 + -
2013 Sept 1 Account Rendered 1176
3 Duplicate Receipt 86 CRJ 1176 -
7 Duplicate Invoice 140 DJ 240 240
12 Duplicate Invoice 142 DJ 216 456

Date Details/Doc.No. Folio Debit Credit Balance

Josh du Preez D2 + -
2013 Sept 1 Account Rendered 846
3 Duplicate Receipt 87 CRJ 360 486
7 Duplicate Invoice 141 DJ 60 546
21 Duplicate Receipt 88 CRJ 486 60

SCHEDULE OF DEBTORS BALANCES SEPTEMBER 2013

S.Soomar D1 456
J. du Preez D2 60
Balance of Debtors Control acc. 516

GENERAL LEDGER OF CROWDER TRADERS – SEPTEMBER 2013

TRADING STOCK (B6) (A)
+ -
2013 Sept 30 Cost of Sales CRJ 5966
Cost of Sales DJ 430

DEBTORS CONTROL (B7) (A)

+ Owe More - Owe Less
2013 Sept 1 Balance bld 2022 2013 Sept 30 Bank 2022
30 Sales DJ 516 Balance CRJ 516
2538 cld 2538
1 Balance bld 516

Exp SALES (N1) (OE) Income

2013Sept 30 Bank CRJ 7160
Debtors control DJ 516
7676
Penal total

Exp COST OF SALES (N2)(OE) Income

2013 Sept 30 Trading Stock CRJ 5966
Trading Stock DJ 430
6396

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 GENERAL LEDGER OF CROWDER TRADERS- MARCH 2014
+ TRADING STOCK (B5)(A) -
2014 1 Balance bld 8630 2014 31 Cost of Sales CRJ 5280
March March
31 Cost of Sales DJ 2177.60
Balance cld 1172.40
8630 8630
April 1 bld 1172.40

+ DEBTORS CONTROL (B6) (A) -

2014 1 Balance bld 1260 2014 31 Bank CRJ 2070
March March
Sales DJ 2722 Balance cld 1912
3982 3982
April 1 Balance bld 1912

National Credit Act

The National Credit Act (35 of 2005) is designed to protect the
Consumer in the credit market and make credit and banking
services more accessible.

The purpose of the NCA is to promote and advance the social and
economic welfare of South Africans; promote a fair, transparent,
competitive, sustainable, responsible, efficient, effective and
accessible credit market and industry; and to protect consumers
while balancing the rights of suppliers.

To promote a fair and non-discriminatory marketplace for access to consumer credit and for that
purpose to provide for the general regulation of consumer credit and improved standards of consumer
information; to promote black economic empowerment and ownership within the consumer credit
industry; to prohibit certain unfair credit and credit-marketing practices; to promote responsible credit
granting and use and for that purpose to prohibit reckless credit granting; to provide for debt re-
organisation in cases of over-indebtedness; to regulate credit information; to provide for registration of
credit bureau, credit providers and debt counselling services; to establish national norms and standards
relating to consumer credit; to promote a consistent enforcement framework relating to consumer
credit; to establish the National Credit Regulator and the National Consumer Tribunal; to repeal the Usury
Act, 1968, and the Credit Agreements Act, 1980; and to provide for related incidental matters.

Debtors allowance
When a debtor returns the goods purchased on account, the sale of the goods returned needs to be
cancelled. The business will issue a credit note to the debtor and then the return is recorded in the
DEBTORS ALLOWANCES JOURNAL.

Before we actually make entries, let us look at the possible reasons for debtor’s
allowances:

1. The goods are not as ordered or there are too many of a kind, then the debtor
physically returns the goods. In this case the Cost of sales of the original sales
will need to be cancelled as well, as the goods will be added back to the
trading stock again.

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2. The goods delivered may have been damaged or are not exactly what the customer ordered,
e.g. wrong colour, but the debtor decides to keep it, but wants a discount because the debtor
is not completely satisfied with the goods. In this case the Cost of sales of the original sales will not
be cancelled as well, because the goods were not physically returned and will Not be added back to
the Trading stock again.

The triple- entry system:

• A debtor’s ledger implies a triple-entry accounting system.
• With regard to credit sales, the individual sale is debited in the debtor’s personal account and is
also included in the total sales debited in the debtor’s control account and is credited in the sales
account.
• The double entry is completed in the General Ledger (debit debtors control and credit sales).
• The third entry is made in the debtors Ledger.

The Debtors Allowance Journal (DAJ)

• This is the journal in which all returns/allowances are recorded.
• Debtors may be unhappy with their purchases.
• Reasons for this unhappiness could be wrong size/colour, damaged stock, overcharges, and errors
on the invoice.
• Source document: Trader will issue a credit note to the customer (one copy is sent to the debtor
and the other is the source document for entry to be recorded in the DAJ.
• Journal: DAJ

Record the following transactions R&R Retailers in the following journals:

a) Debtors journal – columns for Sales and Cost of sales
b) Debtors allowance journal – columns for Debtors allowance and Cost of sales
c) Cash Receipts journal- columns for Analysis of receipts; Bank; Sales; Cost of sales; Debtors control and
Sundry accounts.

TRANSACTIONS- APRIL 20.5

1 Sold the following goods on credit to B. Baker and issued invoice213: One ironing Board, R450 and
one Steam iron,
R330.The business uses a profit mark-up of 25% on cost price.

4 Credit sales to:

R. Rampala, R975. (Cost price, R780) Issued Invoice 214
B. Baker, R700. (Cost price, R560) Issued Invoice 215

7 B. Baker returned the ironing Board, purchased on 1 April 20.5, R450. Issued Credit note 01. (Cost
price, R360)

10 Sold a set of 6 mugs to R. Rampala on Credit, R180. (Cost price, R144) Issued Invoice 216

12 R. Rampala complained that the one mug had a chip. R&R Retailers issued a credit note for R30. (Cost
price, R24)
Issued credit note 02.
15 Received R1 030 from B. Baker in settlement of his account. Issued receipt 554.

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NB: When you record the allowances in the Debtors allowances journal, it is important to verify whether
the goods were returned or whether only an allowance was given. In the case of the transaction on the
7 April 2015, B. Baker returned the steam iron, therefore it needs to be added back to the trading stock.
That is why the cost price is recorded in the Cost of sales column, to cancel the cost of sales and to add it
back to the Trading stock.

Use the Debtors journal, Debtors allowances journal and Cash receipts journal recorded in example 2.2 to
complete the following instructions:
a) Post from the Debtors Journal to the Debtors ledger and General ledger of R&R Retailers. Show folio
references.

b) Post from the Debtors Allowance Journal to the Debtors ledger and General ledger of R&R Retailers.
Show folio references.

c) Post the Cash Receipts Journal to the Debtors ledger and General ledger of R&R Retailers. Show folio
references.

INFORMATION:

The following balances appeared, amongst others, in the General ledger of R&R Retailers on 1 April 20.5:

Bank R5 550.00
Trading Inventory R3 400.00

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Transaction 1: A debtor, J. Jackson returned goods with a selling price of R560 and a cost price of R448.
Issued credit Note 32.

How do we reason this? We look at what happened:

Because the debtor returned the goods, it means the original sales transaction needs to be cancelled, as well
as the goods need to be put back with the trading inventory. This transaction involve two steps.

First the sale has been cancelled: To do this the Debtors allowance account, an expenses account, has to be
debited with the original sales amount, which will decrease the Owner’s equity. The debtor, J. Jacksons’ debt
has to be decreased, therefore his account in the debtor ledger will be credited, because he does not owe
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that money any more, as well as the Debtors control account in the General ledger has to be credited. The
debtor is a current asset which decreases.

Transaction 1: A debtor, J. Jackson returned goods with a selling price of R560 and a cost price of R448.
Issued credit
Note 32.

In the General Ledger:

ASSET OWNERS’ EQUITY
Dr (+) DEBTORS CONTROL Cr (-) Dr (-) DEBTORS ALLOWANCES Cr (+)
560 560

Secondly the Trading inventory is returned to the stock in the business. The cost price of the goods has
to be cancelled in the Cost of Sales account, which is an expense account, but in this case it becomes an
“Income”, because the expense is cancelled, which means the Owners’ equity will increase and the Cost
of sales account is credited. At the same time the trading stock increases, which means the Current assets
are increasing, therefore the Trading inventory account is debited with the cost price.

In the GENERAL LEDGER:

OWNERS’ EQUITY ASSET

Dr (-) COST OF SALES Cr (+) Dr (+) TRADING INVENTORY Cr (-)
488 488

In the DEBTORS: no entry is made

EFFECT OF DEBTORS ALLOWANCES ON ACCOUNTING EQUATION:

Transaction 2: Issued credit not 222, R200 (Cost price, R160) to a debtor, H. Hlope, as an allowance
(discount) for damaged goods.

How do we reason this? We look at what happened:

In this case the goods are not returned by the debtor, but a “discount” is given in the form of an allowance.
This means the business cancelled and to do this the debtor allowances account, an expense account, has
to be debited with the original sales amount, which will decrease the Owners’ equity. The debtor, H.Hlope’s
debt has to be decreased, therefore his account in the Debtors ledger will be credited, because he does not
owe that money any more, as well as the debtors control account in the General ledger has to be credited.
The debtor is a Current asset which decreases.

In the GENERAL LEDGER:

ASSET OWNERS” EQUITY
Dr (+) DEBTORS CONTROL Cr (-) Dr (-) DEBTORS ALLOWANCE Cr (+)
200 200

In the DEBTORS LEDGER:

DEBTOR
Dr (+) H. HLOPE Cr (-)
200

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Transaction Source Journal General Ledger Debtors Ledger A O/E L
No. doc. Account Account Account Account
debited credited debited credited
1. Duplicate DAJ Debtors Debtors J. Jackson -560 -560 0
credit note allowances control
Trading Cost of +488 +488 0
inventory sales
2. Duplicate DAJ Debtors Debtors H. Hlope -200 -200 0
credit note allowance control

Accounting cycle
The accounting cycle is the name given to the collective process of recording and processing the
accounting events of a company. The series of steps begin when a transaction occurs and ends with its
inclusion in the financial statements.

Journal Types and Source Documents

• CJ
Original invoice
 This is the document we receive when purchasing goods on credit
• CPJ
Cheque and cheque counterfoil (NB: Cheques are seldom used today as Internet banking has
become the norm)
 A cheque is a written instruction to pay a specific person an amount of money
 This is from a current/cheque account
 The cheque is issued to the person being payed
 The cheque counterfoil is the proof of transaction, kept by the business.
Bank statement (same as in CRJ)
 A bank statement is issued by the bank to the holder of the account at the end of the month.
 It reflects all transactions that took place in that account, within a specified time.
• PCJ
Petty cash voucher
 A petty cash voucher is when you exchange money for vouchers at which you can use at any
time
• CRJ
Bank statement
 A bank statement is issued by the bank to the holder of the account at the end of the month.
 It reflects all transactions that took place in that account, within a specified time.
Cash Invoice
 This is the same as a CRR, but it has more detail
 It is issued when a business sells a few items a day or provides
a service for cash
Cash Register Roll
 Slip that is given to you when you purchase at a till
 Till slip
 Proof of purchase
 There is a second one that is kept for the owner
 At the end of the day there is a summary printed from
the till of the total of the day’s sales

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  This includes all purchase payed with…
 Check
 Cash
 Credit Card
 Voucher
Duplicate receipt
 Dressed to a specific person or business
 A receipt is issued when the business receives money for
capital from people that owe money
 Debtors
 Original vs. Duplicate
 The customer always gets the original
 The business keeps the duplicate
Bank deposit slip
 A deposit slip is completed whenever money is
deposited INTO the businesses bank account
 The bank keeps the original
 The business keeps the duplicate as confirmation that
the money was deposited
• DJ
Duplicate invoice
 Invoice means credit
 This invoice is for credit sales
 You give the original to people that owe you money
 These people become your debtors
• CAJ
Duplicate debit note
 This is linked with CREDITORS CONTROL
 The business issues a debit note when…
 It returns an un-satisfactory product to their creditor
 When it requests an allowance from their creditor as they are not satisfied with their
product
• DAJ
Duplicate credit note
 This is used for allowances and returns
 It is not possible for anyone to receive an original credit note
 The business gives a credit note because…
 When it agrees to accept goods returned by the debtor
 When it gives the debtor an allowance because they were not satisfied with the product


1. SOURCE
2. JOURNALS
DOCUMENTS



3. LEDGER
5. FINANCIAL
(T-ACCOUNTS)
STATEMENTS 
 4. TRIAL
BALANCE

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Recording of transactions to Debtors Journal (DJ)
Buying the product (Bought by the business from another business):
When buying a product, you either buy it on credit or with cash.

• Buying with cash

When purchasing with cash or any transaction that involves
giving the company money (paying it to the company directly
or depositing into the company’s bank account) will always fall
under the CPJ (Cash payments journal).
This also includes payments for things such as telephone bills,
rent, cash drawings and salaries.

• Buying on credit
When buying on credit or purchasing a product or service
with the intention of paying the company back later, it will fall
under the CJ (Creditors journal).

Selling a product (Sold by the business to a customer):

When selling a product, you either sell it on credit or cash.

• Selling and receiving cash

When selling a product and receiving cash (or any transaction that involves receiving money or a
payment to the company’s bank account) it will always fall under the CRJ (Cash receipts journal).
This will also involve things such as rental income, income on current account, capital transfers/
contributions from the owner and payments from a debtor settling his account.

• Selling on credit
When selling on credit (or any transaction that involves giving a product or service with the
intention of receiving the money later), it will always fall under the DJ (Debtors journal).
It is important for the business to keep track of all its debtors because they are only going to pay
back the money at a later stage.

Returning a product:
This includes both returns from someone and returns to someone when you/they are not happy with the
product received.

• Returns from someone

One reason why people return goods is to get a full cash refund on the item. This happens
for many reasons like damage, product defect, incorrect size or just not according to product
advertisement.
This falls under the DAJ (Debtors Allowance Journal).
• Returns to another business
One reason why goods are returned is to get a full cash return
on the product for various reasons
This falls under the CAJ (Creditors Allowance Journal).

Basic tips to remember:

• When speaking about an invoice, it always refers to a transaction

on credit.
• When speaking about a receipt it always refers to transaction paid
with cash.

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• There are 7 types of journals.
CRJ (Cash Receipts Journal)
DJ (Debtors Journal)
DAJ (Debtors Allowance Journal)
CPJ (Cash Payments Journal)
CJ (Creditors Journal)
CAJ (Creditors Allowance Journal)
PCJ (Petty Cash Journal)

Recording of receipts from debtors in the Cash Receipts Journal (CRJ)

When debtors pay their debt, the cash received is recorded in the CRJ.
The CRJ makes provision for an additional column headed Debtors
Control.
A receipt is issued to the debtor as proof that the money was received. This is called the source document
for the entry.
The effect of the transaction on the accounting equation is as follows:
• Assets + (Cash in bank increases)
• Assets – (Debtors’ debt decreases)

Use the information below to complete the Cash Receipts Journal (CRJ) and Debtors Journal (DJ) of
Highway Dealers.
Highway Dealers sell goods on credit and for cash.
The following transactions must be recorded in DJ 3.3.1 for May and DJ 3.3.2 for June 2003, and in CRJ
3.3.1 for June 2003.

May 2003
3 Sells goods for R320 on credit to S. Weston and issues invoice no. 141 (cp. R256)
8 Issues invoice 142 to A. Niemand for goods sold on credit for R240 (cp. R192)
10 Sells goods for R160 on credit to H. Olwage and issues invoice no. 143 (cp. R128)
12 Sells goods on credit to:
S. Selby for R280, invoice no. 144 (cp. R224)
W. Willow for R120, invoice no. 145 (cp. R96)

June 2003
3 Receives a cheque from S. Weston for R320, issues receipt no. 61
Cash sales of goods, R4 000 (cp. R3 200)
5 Receives R160 cash from H. Olwage and issues receipt no. 62 to him
Cash sales of goods, R1 600 (cp. R1 280)
6 Receives a cheque for R280 from S. Selby and issues receipt no. 63
Cash sales of goods, R1 200 (cp. R960)
14 Sells goods on credit to:
W. Willow for R80, invoice no. 146 (cp. R64)
A. Niemand for R40, invoice no. 147 (cp. R32)
24 Supplies goods on credit to:
S. Selby together with invoice no. 148 for R120 (cp. R96)
30 Cash sales of goods, R4 800 (cp. R3 840)

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 [55]
Desmond’s Dealers had the following balances/totals (among others) in their books at the beginning of
March 2014:

General Ledger:

Trading stock B5 R 8 630

Debtors control B6 R1 260
Bank B7 R8 613
Sales N1 R3 420
Cost of sales N2 R2 736

Debtors Ledger:

P. Barry D1 R410
T. White D2 R330
S. Adams D3 R520

Instruction
1. Calculate the percentage mark-up by making use of the given information.
2. Record the transactions below in the following journals:
3. Debtors Journal for March 2014
4. Cash Receipts Journal for March 2014
5. Close off the Journals and post to the Debtors Ledger and General Ledger.

Transactions - March 2014

04 Issued invoice no. 301 to P. Barry for goods sold to him, R960
Recieved S. Adam’s cheque for R520 in settlement of his debt; issued receipt no. 909

08 Cash sales of merchandise according to the cash register roll, R6 600

15 Delivered trading stock on credit to S. Adams, R720 (cost price=576)

22 Recieved P. Barry’s cheque in settlement of his debt to date. Issued receipt.

24 Received a cheque from T. White for R180 in part-payment of his debt. Issued receipt.

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31 Sold goods on credit:
T. White (CP=R369.60
S. Adams (SP=R580)

DEBTORS JOURNAL –
Inv. No. Day Debtors Folio Sales Cost of Sales

CASH RECEIPTS JOURNAL –
Doc No. Day Details Folio Analysis of Bank Sales Cost of Debtors
Receipts Sales control

[12]
[18]
DEBTORS LEDGER OF
Date Details/Doc. No. Folio Debit Credit Balance
P. Barry

Date Details/Doc. No. Folio Debit Credit Balance
T. White

[9]

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 -

[1]
31 Sold goods on credit:
T. White (CP=R369.30)
S. Adams (CP=R580)

References
https://goo.gl/myM6tS
https://goo.gl/Q7sMwv
https://goo.gl/Yty1Mi
https://goo.gl/Wucy6Y
https://goo.gl/2VBGbQ
https://goo.gl/R5SRbY
https://goo.gl/BUW9Uu
https://goo.gl/c4TTW4
https://goo.gl/1sKWGE
https://goo.gl/FgTzqG

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