Bought Ledger

Bought Ledger Creditors' Ledger Accounts Payable Trade Payables Financial Accounting Supplier Invoices Corporate Finance Ledger Management
The Bought Ledger, also known as Creditors’ Ledger, is a sub-ledger accounting record that details all the credit purchases a company makes from its suppliers, providing a clear view of all owed amounts and due dates.
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Bought Ledger

The Bought Ledger, also referred to as the Creditors’ Ledger, is a specialized accounting record that tracks a company’s purchases made on credit from its suppliers. It serves as a sub-ledger to the general ledger, providing detailed insights into amounts payable to individual creditors, due dates, and payment histories.

Examples

  1. Retail Store Inventory Purchases: A retail store purchases inventory worth $10,000 on credit. This transaction would be recorded in the bought ledger, showing the supplier’s details, the total amount owed, and the payment terms.

  2. Office Equipment Acquisition: A company orders office equipment worth $5,000 on credit. This acquisition gets recorded in the bought ledger, noting the supplier’s invoice, amount, and due date, ensuring the company tracks forthcoming payments.

  3. Raw Materials for Manufacturing: A manufacturing firm buys raw materials worth $50,000 on credit. Each purchase entry is recorded in the bought ledger, specifying creditor details and payment due dates, which helps in maintaining an organized account payable schedule.

Frequently Asked Questions

1. What is the difference between the Bought Ledger and the General Ledger?

The Bought Ledger is a sub-ledger that specifically tracks credit purchases from suppliers, whereas the General Ledger contains all financial transactions of a company, summarizing across various accounts including the bought ledger.

2. Can small businesses benefit from maintaining a Bought Ledger?

Yes, small businesses can benefit significantly from a bought ledger as it helps in managing credit purchases systematically, ensuring timely payments and maintaining good supplier relationships.

3. Is the Bought Ledger the same as the Accounts Payable Ledger?

Yes, the Bought Ledger is essentially another name for the Accounts Payable Ledger. Both terms reference the same accounting process that tracks amounts a company owes to its suppliers.

4. How does the Bought Ledger affect cash flow management?

The Bought Ledger aids in cash flow management by providing clear details of upcoming payments, helping companies plan their cash outflows and ensuring they have sufficient funds when payments are due.

5. How is the Bought Ledger updated?

The Bought Ledger is updated each time a purchase is made on credit, and when payments for these credits are settled, ensuring the ledger reflects the most current payables status.

1. Accounts Payable (AP): A company’s obligation to pay off short-term debt to its creditors or suppliers.

2. Trade Payables: Amounts a business owes to its suppliers for goods and services purchased on credit.

3. General Ledger (GL): A complete record of all financial transactions over the life of a company.

4. Credit Terms: The conditions under which credit is extended by a lender to a borrower, including terms of repayment.

5. Invoice: A document issued by a seller to a buyer, indicating the products, quantities, and agreed prices for products or services provided.

6. Debit Ledger: The counterpart of the bought ledger, recording amounts owed by customers to the company.

Online References

  1. Investopedia - Accounts Payable
  2. Accounting Coach - Accounts Payable
  3. The Balance - Accounts Payable Definition

Suggested Books for Further Studies

  1. “Financial Accounting: An Introduction to Concepts, Methods and Uses” by Roman L. Weil, Katherine Schipper, Clyde P. Stickney – This book provides a comprehensive foundation in financial accounting.

  2. “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper – An easy-to-understand guide that condenses accounting principles.

  3. “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield – More advanced topics in accounting with detailed explanations.

  4. “Managerial Accounting for Dummies” by Mark P. Holtzman – Provides managerial accounting insights that complement financial records like the bought ledger.

Accounting Basics: “Bought Ledger” Fundamentals Quiz

### What is the bought ledger primarily used for? - [ ] Tracking cash sales - [x] Tracking credit purchases - [ ] Tracking employee salaries - [ ] Tracking company investments > **Explanation:** The bought ledger is primarily used for tracking credit purchases from suppliers. ### What other name is commonly used for the bought ledger? - [x] Creditors' Ledger - [ ] Debtors' Ledger - [ ] General Ledger - [ ] Journal Ledger > **Explanation:** The bought ledger is also known as the Creditors' Ledger. ### Which of the following is recorded in the bought ledger? - [ ] Employee payroll data - [x] Supplier invoice details - [ ] Sales revenue data - [ ] Stock valuations > **Explanation:** Supplier invoice details and credit purchases are recorded in the bought ledger. ### How does the bought ledger help in cash flow management? - [ ] It records depreciation expenses - [ ] It tracks revenue from customers - [x] It provides details of upcoming payments - [ ] It summarizes quarterly earnings > **Explanation:** The bought ledger helps manage cash flow by providing clear details of upcoming payments. ### What happens to a purchase transaction in the bought ledger once it is paid off? - [ ] It is moved to the sales ledger - [ ] It is removed entirely - [x] It is marked as settled - [ ] It affects the company's fixed assets > **Explanation:** Once a purchase transaction is paid off, it is marked as settled in the bought ledger. ### Why is the bought ledger important for small businesses? - [ ] It helps track employee performance - [x] It helps manage credit purchases systematically - [ ] It aids in product development - [ ] It increases company sales > **Explanation:** Small businesses use the bought ledger to manage credit purchases systematically and ensure timely payments. ### What type of liability is recorded in the bought ledger? - [ ] Long-term liabilities - [x] Short-term liabilities - [ ] Equity - [ ] Fixed assets > **Explanation:** The bought ledger records short-term liabilities related to credit purchases from suppliers. ### The bought ledger can also be termed as: - [ ] Accounts Receivable Ledger - [ ] Fixed Asset Ledger - [x] Accounts Payable Ledger - [ ] General Ledger Summary > **Explanation:** The bought ledger is also known as the Accounts Payable Ledger. ### A company’s bought ledger helps maintain good relationships with: - [ ] Investors - [x] Suppliers - [ ] Employees - [ ] Competitors > **Explanation:** The bought ledger helps maintain good relationships with suppliers by ensuring timely payments and accurate records. ### Which key feature must a transaction have to be recorded in the bought ledger? - [x] It must be a purchase made on credit - [ ] It must be a purchase made with cash - [ ] It must involve an internal transfer - [ ] It must be an asset purchase > **Explanation:** To be recorded in the bought ledger, a transaction must be a purchase made on credit.

Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!

Tuesday, August 6, 2024
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