AS-L02 — Double Entry (Credit Transactions)
Understanding how credit transactions are recorded and how receivables and payables arise within the double entry system.
Learning Objectives
By the end of this lesson students should be able to:
• distinguish between cash and credit transactions
• identify receivables and payables
• record credit purchases and credit sales
• record payments to suppliers and receipts from customers
• answer examination-style questions
Concept Framework
What are Credit Transactions?
Credit transactions occur when goods or services are exchanged without immediate payment.
Payment is deferred to a later date, creating obligations between businesses.
Key Terms
Receivables → amounts owed to the business (customers)
Payables → amounts owed by the business (suppliers)
CORE RULES
| Transaction Type | Debit Entry | Credit Entry |
|---|---|---|
| Credit Purchase | Purchases | Payables |
| Credit Sale | Receivables | Sales |
| Payment to Supplier | Payables | Bank/Cash |
| Receipt from Customer | Bank/Cash | Receivables |
TRANSACTION LOGIC
Buying on credit → increases expenses → Debit Purchases
Selling on credit → increases income → Credit Sales
Customer owes us → Debit Receivable (asset increases)
We owe supplier → Credit Payable (liability increases)
Worked Examples
Example 1
Purchased goods on credit from Ahmed £1,000
Debit Purchases £1,000
Credit Ahmed £1,000 Example 2
Sold goods on credit to Ali £800
Debit Ali £800
Credit Sales £800 Example 3
Paid Ahmed £600 by bank
Debit Ahmed £600
Credit Bank £600 Example 4
Received £500 from Ali
Debit Bank £500
Credit Ali £500
📌 Additional questions are available in the 🎯 Question Papers + YouTube Explanation section.
Students should practise explanation questions regularly to improve examination performance.
Enrolled students may submit questions from recognised textbooks, past examination papers, or other academic material for expert clarification through the Student Doubt Support facility.
Structured Practice
Level 1 – Concept Check
Define receivables
Define payables
Level 2 – Application Practice
Explain the difference between a credit purchase and a credit sale
Level 3 – Examination Style Question
Record the double entry for:
Purchased goods on credit from Rohan £1,200
(2 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Unlearn → Relearn
1. Can you identify receivables and payables correctly?
2. Can you record credit transactions accurately?
3. Can you explain how payment settles balances?
If unsure, revise the worked examples.
Detailed Activity Solutions
Solution to Level 3 question
Level 3 Answer:
Debit Purchases £1,200
Credit Rohan £1,200
Purchases is an expense (debit)
Rohan is a payable (credit)
How This Topic Appears in the Examination
This topic commonly appears as:
• recording credit transactions
• identifying receivables and payables
• ledger entries and balances
Examiners assess:
• correct account classification
• accuracy of debit and credit
• understanding of credit relationships
Self-Assessment Checklist
I understand credit transactions
I can identify receivables and payables
I can record credit purchases and sales
I understand how payments affect balances
I can answer exam questions confidently
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