As a business, if you buy from suppliers and pay them on credit terms, you will have supplier accounts. These supplier accounts can also be known as purchase ledger accounts.
Each supplier will have their own purchase ledger account, which will show the invoices, the credit notes and the payments made. It will also show the balance that is owed to the supplier.
The supplier invoices you receive will be entered to the purchase ledger account. They will first need to be written into the purchase daybook, which will contain a list of all of the invoices received.
From here they will be written into the purchase ledger accounts. The individual supplier accounts will be credited with the invoice value, as this is the amount that is owed to the supplier.
Before the invoice can be entered, it must be checked against the original purchase order to ensure you are being invoiced for exactly what was ordered. It will also need to be checked against the delivery note to make sure the goods you are being invoiced for were delivered.
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Supplier credit notes
Suppliers will issue credit notes for any invoices that have been issued incorrectly. For example, the invoice could have been for the wrong amount, or for the wrong goods.
The credit note will need to be debited to the purchase ledger account to reduce the amount that is owed to the supplier.
The payments you make to a supplier for the invoices minus the credit notes will also need to be entered into the supplier/purchase ledger account.
This will be debited to the account to reduce the balance owed to the supplier.
Reconciling the supplier accounts
The supplier accounts will show the balance that is due to be paid to the supplier. It will show all invoices during the period, minus any credit notes. It will also show any payments received.
On a monthly basis, suppliers will usually send a statement showing what they believe is owed to them from your business. You will need to match what you think you owe to what they think is owed. This is called a supplier statement reconciliation.
You will tick off the invoices and the credit notes, and any invoices that you have not received will need to be requested from the supplier.
Any payments that you have made that do not appear on the statement will need to be checked, to see if they have left the bank account. If they have been paid out of the bank account, you will need to inform the supplier that they have been paid. If they have not cleared the bank account, then the cheque may be lost, and therefore needs writing out again.
Purchase ledger accounts need to be maintained so that suppliers are paid accurately and on time, to ensure that the business can continue to operate effectively. The earlier the discrepancies are identified, the easier they are to resolve.
Purchase ledger accounts are covered in more detail on the globally recognised AAT qualificaton.