Premium 2011
PAYABLES
Module
Beyond Basics
Contents
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Filing HST Returns
3
Vendor Prepayment
6
Discount for Merchandise Purchases 8
Discount for Non-Merchandise Purchases
Adjusting Inventory - 11
PAYABLES Reports
-
Financial Statements 16
Vendor Aged Report 17
Pending Purchase Orders Report
Cheque Log 21
Cash Flow Projection 22
9
19
Slideshow 3B
Filing HST Returns
When you sell merchandise or services,
you would charge HST and record it as
HST CHARGED ON SALES, recorded as
a Liability, and therefore is a credit. HST
PAID ON PURCHASES is what you pay
when you purchase goods or services.
Chart of Accounts
HST CHARGED ON SALES and
HST PAID ON PURCHASES are
entered as Liabilities A
(Accumulated) accounts. HST
OWING (REFUND) is usually
entered as an S (Subtotal) account.
Study how these accounts are set up in
the Chart of Accounts and how Simply
presents them on the Balance Sheet.
When you register for HST, the Canada
Revenue Agency will assign your business
a reporting period based on your
business's annual taxable supplies of
goods and services made in Canada.
However, depending on which annual
taxable supplies category your business
falls into, you may be able to choose an
optional HST reporting period instead of
your assigned one.
Filing HST returns can be done by mail,
through participating banks (unless you
are claiming a refund or filing a nil return),
or electronically through using HST
NETFILE, HST TELEFILE or Electronic
Data Interchange.
On the HST return, you declare the
amount of HST you collected from various
customers and deduct HST you paid on
purchases (also referred to as Input Tax
Credits or ITCs).
Click to continue.
Balance Sheet
Filing HST Returns
(continued)
HST COLLECTED ON SALES less
HST PAID ON PURCHASES
determine your HST net tax. This net
tax is either a positive amount (an
amount that you will have to pay the
federal government), or a negative
one (the amount of the refund the
federal government will send you).
Click.
To start journalizing HST payment,
you would click Pay Expenses on the
Payables home window. The
Payments Journal will appear, with
Make Other Payment transaction
type selected. This is correct, as there
is no invoice entered in the company
files for this type of transaction.
Click.
As you select Receiver General, the
account entered as the Expense
Account in the Payables Ledger
appears under Acct, which is this
case is HST CHARGED ON SALES.
Observe also the columns are
different from the other Payments
option.
Click to continue.
Filing HST Returns
(continued)
You would then enter the amounts for
HST CHARGED ON SALES and HST
PAID ON PURCHASES.
Click.
Notice that HST PAID ON
PURCHASES is entered with a minus
sign because it is a contra-liability
account (it decreases liability).
Click.
The TOTAL is the number entered in
the Amount of the cheque. This
amount should be equal to the HST
OWING (REFUND) amount on the
Balance Sheet.
Click.
Study the resulting Payments Journal
Entry.
Click to continue.
Vendor Prepayment
A vendor prepayment is an
advance payment on a commitment
to purchase from a vendor. Prepayment is usually required for an
unusually large order, order for
custom-made goods, or when the
company is dealing with a new
vendor. You would enter the
prepayment in a Purchase Order.
Click.
You would select Cheque for
Payment Method (see top arrow).
Notice that Prepay Ref. No. and
Prepayment Applied fields appear.
You would fill in the purchase order
as usual, enter the amount paid in
the Prepayment Applied field, and
click RECORD.
Click.
Study the Purchases Journal Entry.
Normally, there is no journal entry
generated by a Purchase Order, but
because there is payment involved
in this transaction, notice that the
prepayment is entered as a debit to
ACCOUNTS PAYABLE which
normally has a credit balance.
Click to continue.
Vendor Prepayment
(continued)
If you display the Vendor Aged
Detail report, notice that the
prepayment is entered in the Vendor
Subledger as a negative amount.
This is because the prepayment is a
decrease in the company’s
ACCOUNTS PAYABLE ledger.
Click to continue.
Discount for Merchandise
Purchases
At this point, it is important to
distinguish between purchase
discount for merchandise (goods for
resale) and for non-merchandise
items (goods that you use or consume
to do business; e.g., office supplies,
office furniture, etc.).
In the last slideshow, you learned that
you would take a discount upon early
payment according to the terms of
payment. The Discount Available is
carried over in the Discount Taken
column when you tab to it.
Click.
Review the resulting journal entry.
Notice that Discount Taken is
recorded in the PURCHASE
DISCOUNTS account. Remember,
this is a transaction involving
merchandise for resale.
Click to continue.
Journalizing Discount for
Non-Merchandise
Purchases
Discount for purchases of goods not for
resale should NOT be recorded in
PURCHASE DISCOUNTS, as this will
cause the COST OF GOODS SOLD total
to be inaccurate. Instead, the discount
should be deducted from the cost of the
purchase (PREPAID OFFICE SUPPLIES
in this example).
Study the original invoice at the right.
According to the terms of payment, there
should be a discount if it is paid within 10
days (on or before April 16).
To journalize the payment with discount
requires two steps:
Step 1: Record the Discount.
Click.
At the time of payment, find out the
discount available in the Payments
Journal, but be careful not to post it
because if you do, it will post the discount
to PURCHASE DISCOUNTS, which is
wrong. In this example (see right), the
discount is $6.00.
Click to continue.
Journalizing Discount for
Non-Merchandise Purchases
Invoice No.– Enter the
original invoice number with
a suffix Di (for Discount)
(continued)
You would then create a Purchase Invoice
to record the discount. Click the circled
numbers on the invoice in numerical order
for an explanation of the invoice details.
Click and study the Purchase Journal Entry.
Step 2: Journalize the Payment
Detail Line– Enter the
discount amount as
negative. Notice that
there is no HST, and the
Acct is PREPAID
OFFICE EXPENSE.

Click.
When you journalize the payment, you
would include everything that refers to the
particular invoice. In this example, you
would process Invoices 4556 and 4556Di
without discounts.
The amount of the original invoice, less
the discount processed (no discounts
taken) appears as the AMOUNT and on
the cheque portion.
Click
Study the resulting Payments Journal
Entry. Observe that there is no
PURCHASE DISCOUNT recorded;
instead the discount reduces the amount
of goods purchased (e.g., Prepaid Office
Supplies) as well as ACCOUNTS
PAYABLE. Remember, this is for nonmerchandise purchase transactions.
Click to continue.
TERMS – The Terms boxes should
be blank.


Adjusting Inventory
Study the two methods of reporting
INVENTORY described on the right.
It is important for you to understand
INVENTORY concepts at this point
to properly interpret the Balance
Sheet and Income Statement which
you will print along with other
month-end reports.
In Chapter 3, we are using the
Periodic Inventory system. You will
learn all about Perpetual Inventory
in Chapter 8.
Regardless of the method used in
reporting INVENTORY, a physical
count needs to be done periodically
to account for changes in inventory
outside of sales and purchases
transactions.
Keep in mind that INVENTORY
refers to merchandise on hand.
When you purchase merchandise,
INVENTORY increases; when you
sell merchandise, INVENTORY
decreases. INVENTORY also
decreases when merchandise is
lost, damaged or becomes obsolete.
Click to continue.
Periodic Inventory
A company conducts a physical count of
merchandise on hand at certain periods,
usually at period-end (monthly or yearly) and
make adjustments to INVENTORY related
accounts.
This is the method used by Tyson’s Toys in
Chapter 3.
Perpetual Inventory
A company may choose to record increases and
decreases of INVENTORY every time a purchase
or a sale of merchandise occurs.
This is the method used in Chapter 8 of the text.
Adjusting Inventory
(continued)
At the right is the part of the
Study
Income Statement
Incomethe
Statement
related to at the
right.
INVENTORY.
Click.
Click.
Beginning
Beginning Inventory
Inventory is
is the
the value
value
of
INVENTORY
at
the
end
of
of INVENTORY at the end of the
the
last
fiscal
period.
last accounting period.
Click.
Click.
Purchases, Purchases Returns
Purchases, Purchases Returns
and Purchase Discounts reflect
and Purchase Discounts reflect
all purchase transactions from the
all purchases transactions from the
beginning of the current accounting
beginning of the current accounting
period (Jan 1, 2016 to March 31,
period.
2016).
Click.
Click.
Ending
Ending Inventory
Inventory is
is the
the value
value of
of
INVENTORY
according
to
a
INVENTORY according to the last
physical
physical count.
count.
Click.
Click.
Study
a more
detailed
illustration
of
The result
at the
bottom
referred to
how
COST
OF
GOODS
SOLD is
as COST
OF
GOODS
SOLD
calculated.
TOTAL.
Click to continue.
Click to continue.
Adjusting Inventory
(continued)
On the Balance Sheet,
INVENTORY is under Current
Assets.
Click.
Study the connection between the
INVENTORY item on the Balance
Sheet and Ending Inventory on the
Income Statement.
Click to continue.
Adjusting Inventory
(continued)
Why and when would you need to
adjust INVENTORY?
When INVENTORY is bought, sold or
returned, the related purchase and
sales accounts are updated in a
Perpetual inventory system.
However, the INVENTORY account
balance is not automatically updated
by Simply in a Periodic inventory
system.
Although all purchases and sales
transactions may have been
accurately recorded in either
inventory system, there is still room
for error in the actual value of
INVENTORY after a period of time.
INVENTORY may change due to
loss, theft, or damage. This is why a
physical count is necessary and an
Inventory Adjustment has to be
entered.
Before you make an adjustment, you
have to find out the true value of
INVENTORY. Typically, you may get
a memo like the one on the right.
Read the note carefully.
Click to continue.
Note: A physical count of inventory must be done in order to
update the INVENTORY account balance. For Sage Simply
Accounting, both the asset inventory and COGS Ending Inventory
account balances need to be adjusted to reflect the actual count
on hand for accurate Income Statement and Balance Sheet
reporting.
Adjusting Inventory
(continued)
Case Scenario
Study the case scenario at the
right.
According to the memo, a physical
count of Inventory results in:
Physical count value =
8,297.00
To adjust INVENTORY in this case
requires two steps:
1. Set the current INVENTORY
value to zero.
2. Enter the new INVENTORY
value to reflect the physical count.
Step 1: Set the current INVENTORY
value to zero.
The adjusting entries are entered
in the General Ledger. Study the
resulting General Journal entries
at the right.
Click to continue.
Step 2: Enter the new INVENTORY value to
reflect the physical count.
The PAYABLES Module
Financial Statements
Purchase on credit of
goods/services not for resale
increases Offices/Store
Expenses in the Income
Statement or increases assets
(prepaid assets; e.g., Prepaid
Office Supplies) in the Balance
Sheet. It also increases
ACCOUNTS PAYABLE, and HST
PAID ON PURCHASES (if any).
Click.
A payment decreases BANK
ACCOUNT and ACCOUNTS
PAYABLE in the Balance Sheet. If
paid within the discount period,
the amount paid will be reduced.
Click.
Discounts for merchandise for
sale will be reflected in the
PURCHASE DISCOUNTS
account in the Income Statement
(a decrease to Cost of Goods
Sold). Discounts for nonmerchandise will reduce the
asset or prepaid account.
These are just a few examples.
Click to continue.
PAYABLES Reports:
Vendor Aged Report
As in the RECEIVABLES module,
you can produce a Vendor Aged
report in either a summary or
detail format. Similarly, vendor
accounts are aged from the
session date based on transaction
date.
You may print an aged report for
one vendor, a group of vendors or
all vendors.
This type of report is very useful in
cash flow planning and vendor
inquiries.
Study the samples of summary and
detail Vendor Aged reports.
Click to continue.
Vendor Aged
SUMMARY
Report
Vendor Aged
DETAIL
Report
PAYABLES Reports:
Vendor Aged Report
(continued)
Balance
Sheet
Remember that at any time, the
Vendor Aged Summary Total
Outstanding ($6,114.67) must
equal the ACCOUNTS PAYABLE
control account in the Balance
Sheet.
Click to continue.
Vendor Aged
SUMMARY Report
PAYABLES Reports:
Pending Purchase Orders
Report
When you need to find the status of
your pending purchase orders, you
can display and/or print the
Pending Purchase Orders report..
You may display/print pending
purchase orders for a specific
vendor or for all vendors.
Click to continue.
PAYABLES Reports:
Cheque Log
The Cheque Log report is very
important for the audit trail, bank
reconciliation and also for cash
control. Note that among other
things, the corresponding journal
entry. This ensures that every
cheque issued has been recorded.
It also includes the number of times
the cheque was printed.
The Cheque Log report should be
printed and filed along with the
other month-end reports.
Click to continue.
Cash Flow Projection
Report
The Cash Flow Projection report
shows how the bank account is
expected to change by anticipated
payments to outstanding vendor
accounts, and expected customer
payments (receipts) to be received
within a specified number of days.
The default is showing the cash
flow within 30 days. You can
change this by selecting Modify
Report Options when the default
report displays.
The detail report shows one line for
each transaction affecting the bank
account balance.
Study the options available and the
sample SUMMARY report at the
right.
Click to continue.
More…
Go back to your text and
proceed from where you have
left off.
Review this slideshow when
you finish the chapter to better
prepare yourself for the next
chapter.
Press ESC now, then click the
EXIT button.
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