CCMM517
Chapter 7:
Current Assets
Study Unit 4
OUTCOMES
• Define & discuss following concepts:
– current assets
– inventory
– debtors
- bank (cash)
• Identify the relevant source documents
• Record the transactions in the general journal
• Post the journal entries to the general ledger
• Prepare the abbreviated trial balance
• Identify the relevant accounts in the financial
statements
CURRENT ASSETS
Used in the normal course of business
Can be easily converted to cash
Usually temporary in nature
Value changes constantly
Examples of current assets
Debtors Inventory Bank Petty cash
Consumables Stationery Accrued Prepaid
income expenses
(Ch 10) (Ch 10)
Disclosure
Statement of financial position
85 000
Current assets
Inventory 20 000
Trade and other debtors 15 000
Cash and cash equivalents 50 000
Detail of current assets is provided in the notes to the financial
statements (Ch 12):
Inventory Trading inventory/Consumables/Stationery/etc.
Trade & other debtors Trade debtors less Allowance for credit
losses + Other debtors
Cash & cash equivalents Bank/Petty cash/ST investments
Debtors
Clients purchase goods/services on credit
Thus owe money to the entity
Pay monthly or in a single payment
Debtors – Types of discount
Settlemen Settle account before or on a
t discount specific day
Receive discount for immediate
payment
Cash Deduct discount from selling
discount price & show only net amount
as sales
No entry for discount portion
Give discount on credit sales
Trade Treat the same as cash discount
discount
Settlement discount
A debtor who owes R5 000 paid his account in
full and received 5% discount
Discount = R5 000 x 5% = R250
Amount received = R5 000 – R250 = R4 750
Bank 4
750
Discount allowed 250
Debtors control 5
000
Cash discount
A client purchased goods for R5 000 cash and
received 10% discount
Discount = R5 000 x 10% = R500
Amount received = R5 000 – R500 = R4 500
Bank 4
500
Sales 4
500
Trade discount
A debtor purchased goods for R7 000 and received 10%
trade discount. He paid his account 30 days later.
Discount = R7 000 x 10% = R700
Owes = R7 000 – R700 = R6 300
Debtors control 6 300
Sales 6
300
Bank 6
300
Debtors control 6
Allowance for credit losses
Create allowance for credit losses at
Possibility that
yearend
clients will not Makes provision for possible losses
pay
1. Credit losses (expense or income)
Two
2. Allowance for credit losses (include
accounts
under current assets)
Allowance for credit losses
Create/ Dr Credit losses (expense)
increase Cr Allowance: credit losses
allowance
Decrease Dr Allowance: credit losses
allowance Cr Credit losses (income)
Write off credit losses
If an
allowance Dr Allowance: Credit losses
exists Cr Debtors control
If an
allowance Dr Credit losses
does not Cr Debtors control
exist
Trading inventory
Goods or raw materials
Held for sale or for manufacture
Other types of inventory, e.g.
stationery, consumables
Must keep a record of inventory
Mainly FIFO (first-in-first-out basis)
One-line item under Current Assets in
Statement of Financial Position
Details shown in a Note
Example - Stationery
Purchased stationery during the month for R4 500
cash. Stocktake done on last day of month showed R2
000 stationery still on hand.
Buy stationery:
Stationery (expense) 4 500
Bank
4 500
Record stocktake:
Stationery on hand 2 000
Stationery (expense) 2 000
Bank
Not CRJ & CPJ only do bank account in GL
Bank reconciliation (Ch 16)
Balance from previous year Opening balance for new
year
Show all receipts and payments (cash/cheque/
electronic transfer) in bank account
Payments cr Bank
Amounts received dr Bank
Credit balance overdraft (current liability Ch 8)
Debit balance favourable (current asset)
Petty cash
Pay small amounts of cash on a regular basis
E.g. milk, coffee, tea, stamps, stationery
Uneconomical to write cheque or withdraw small amount
of cash each time
Petty cash container is kept by petty cash clerk
Float cash business cheque & hand to clerk put
money in container & use it use to pay expenses
Complete petty cash voucher for each payment
If float is less than a certain amount calculate the total
expenses & restore the “imprest”
Receive Dr Petty cash, Cr Bank
float
Payments Dr Each expense, Cr Petty cash
Examples in chapter
Work through all examples
on your own
For more information, refer to your
textbook
Work through all examples in your
textbook
Do you have any questions?
[Link]@[Link]