Apply double-entry and GST principles to record credit purchases, purchase returns and payments to suppliers, and reconcile the accounts payable control account with the schedule of accounts payable

What this dot point is asking

QCAA wants you to manage the other side of credit trading: what the business owes suppliers. You must record credit purchases of inventory and other items including GST, record purchase returns and payments, and keep a subsidiary ledger of individual suppliers. The accounts payable control account in the general ledger summarises every supplier, and at period end its balance must equal the total of the schedule of accounts payable drawn from the subsidiary ledger. This reconciliation is the key control that confirms the records are complete and accurate.

Recording credit transactions with suppliers

A GST-registered business buying inventory on credit recognises both the inventory and the GST it can claim back. For a credit purchase of $2,200 of inventory including GST (GST component$2,200 / 11 = $200):

• Debit Inventory $2,000
• Debit GST Clearing $200
• Credit Accounts Payable $2,200

When the business pays the supplier, it reduces the liability and the bank:

• Debit Accounts Payable $2,200
• Credit Cash at Bank $2,200

If goods are returned to the supplier (a purchase return), both the liability and the inventory fall, and the GST originally claimed reverses. For a $330 return:

• Debit Accounts Payable $330
• Credit Inventory $300
• Credit GST Clearing $30

Some suppliers offer a discount for early settlement (discount received), which is revenue to the buyer; it reduces the amount paid and reverses a portion of the GST claimed.

The control account and the subsidiary ledger

A trading business may owe dozens of suppliers, so it keeps two layers of records:

• Subsidiary (accounts payable) ledger: one account per supplier, showing exactly what is owed to each one.
• General ledger control account: a single Accounts Payable account that records the same transactions in total.

Every credit purchase, return and payment is posted twice: once to the individual supplier in the subsidiary ledger and once, in total, to the control account. Because both capture the same data from different angles, the control account becomes a built-in check on the subsidiary ledger.

Reconciling to the schedule of accounts payable

At period end the business prepares a schedule of accounts payable: a list of every supplier balance from the subsidiary ledger, totalled. That total must equal the closing balance of the Accounts Payable control account in the general ledger. When they match, the records reconcile and the figure is reliable enough to report as a current liability in the balance sheet. When they do not match, there is an error, such as a transaction posted to the control account but not to a supplier, a wrong amount, or a posting to the wrong supplier, which must be found and corrected.

This reconciliation is an internal control. It protects against fraud and error and ensures the business does not overpay or underpay suppliers, which protects both cash flow and supplier relationships.