Accounts payable control in QCE Accounting Unit 3
“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”
Accounts payable is a current liability: amounts owed to suppliers for goods and services bought on credit. A credit purchase debits Inventory (or the relevant account), debits GST Clearing for the GST paid, and credits Accounts Payable. Payments debit Accounts Payable and credit Cash at Bank; purchase returns debit Accounts Payable and credit Inventory and GST Clearing. Each supplier has an account in the subsidiary ledger, while the general ledger holds a single Accounts Payable control account. At period end the control account balance must equal the schedule of accounts payable (the list of individual supplier balances). If they disagree, there is a posting error to find before the balance sheet is prepared.
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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.
The data
Delta Hardware starts June owing suppliers a total of $9,400. During June: credit purchases of inventory $13,200 (GST inclusive); purchase returns $660 (GST inclusive); payments to suppliers $15,400; a discount received of $120 on an early payment.
Accounts Payable control account
All amounts are GST inclusive where they affect the liability.
| Accounts Payable (control) | Debit | Credit |
|---|---|---|
| Opening balance | 9,400 | |
| Credit purchases | 13,200 | |
| Purchase returns | 660 | |
| Payments to suppliers | 15,400 | |
| Discount received | 120 | |
| Closing balance (bal.) | 6,420 |
Closing balance = 9,400 + 13,200 - 660 - 15,400 - 120 = 6,420.
Schedule of accounts payable
The subsidiary ledger at 30 June lists:
| Supplier | $ |
|---|---|
| Ace Timber | 2,310 |
| Bolt Supply Co | 1,650 |
| Coastline Fixings | 2,460 |
| Total | 6,420 |
The check
The schedule total ($6,420) equals the control account closing balance ($6,420), so accounts payable reconciles. The verified $6,420 is reported as a current liability in the balance sheet. Had the schedule totalled, say, $6,540, the $120 difference would point straight to the discount received not being posted to a supplier account.
- Debiting the supplier when recording a purchase
- A credit purchase credits Accounts Payable (the liability rises); it is debited only when the business pays or returns goods.
- Forgetting to reverse GST on a purchase return
- Returning goods reverses both the inventory and the GST originally claimed through GST Clearing.
- Confusing the control account with the schedule
- The control account lives in the general ledger; the schedule is the list of individual supplier balances from the subsidiary ledger. They should be equal, not the same record.
- Treating discount received as reducing inventory
- Discount received is revenue, not a change in the cost of inventory.
Exam-style questions
Questions in the style of QCAA exam questions on this dot point, each with a worked answer. They are written by ExamExplained unless tagged "Past paper"; the year shows the paper a question is modelled on.
Practice1 markOn 31 March 2024, a stationery business purchased the following inventory items on credit: red and blue pens at $1.10 per box (including GST) for 3 000 boxes, and printing paper at $2.20 per pack (including GST) for 5 000 packs. Identify the correct recording of this information in the general ledger account extracts. (A) Inventories DR 14 300; Accounts payable CR 13 000; GST clearing CR 1 300 (B) Inventories CR 13 000; Accounts payable DR 14 300; GST clearing DR 1 300 (C) Inventories CR 14 300; Accounts payable DR 13 000; GST clearing DR 1 300 (D) Inventories DR 13 000; Accounts payable CR 14 300; GST clearing DR 1 300Show worked answer →
The correct answer is (D).
First find the totals. Pens: 1.10 x 3 000 = 11 000. Total including GST = 1 300 GST, so the cost of inventory is 14 300 - 1 300 = $13 000.
For a credit purchase by a GST-registered business:
- Inventories (asset) increases, so it is debited the GST-exclusive cost $13 000.
- GST Clearing is debited the $1 300 GST paid (this reduces the net GST owed to the ATO).
- Accounts payable (liability) increases by the full amount owed to the supplier, $14 300, so it is credited.
Only option D records the asset and GST as debits and the payable as the GST-inclusive credit. The other options reverse the debits and credits or put the GST-inclusive figure against inventories.