Debtors Allowances Journal Revision Notes for Grade 10 NSC Matric Accounting

Debtors Allowances Journal

What is a debtors allowances journal?

A debtors allowances journal (also called a DAJ) is a subsidiary journal used to record when customers (debtors) return goods that they bought on credit from the business. When customers return goods, the business needs to reduce what they owe and give them an allowance (like a refund on their account). This journal helps you keep track of all these returns in an organised way.

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Think of it like this: when a customer brings back something they bought from your shop, you need to write down what they returned and adjust their account. The debtors allowances journal is where you record all these returns before posting them to the individual debtor accounts and the general ledger.

Why do we need this journal?

Customers might return goods for various reasons:

The goods are damaged or faulty
They received the wrong items
They simply changed their mind
Goods were delivered late

When this happens, we need to:

Reduce the amount the debtor owes us (they don't have to pay for goods they returned)
Adjust our stock records (we got the goods back)
Record the cost of the returned goods

Structure of the debtors allowances journal

The journal has specific columns that help organise the information. Here's what a typical debtors allowances journal looks like:

Doc	Day	Debtors	Fol	Debtors Allowances	Cost of sales

Let me explain what goes in each column:

Column 1: Doc (document number)

This column records the credit note number that was issued to the customer. A credit note is an official document that confirms you're giving the customer an allowance for returned goods. Credit notes should be numbered in sequence (like 33, 34, 35) to help with tracking and control. Always enter these numbers in numerical order.

Column 2: Day

This shows the specific day of the month when the transaction occurred. For example, if goods were returned on 8 May, you would write "8" in this column. You don't need to write the full date, just the day number.

Column 3: Debtors

Here you write the name of the customer (debtor) who returned the goods. For example: "S. Moila" or "J. Abrahams". This helps you identify which customer's account needs to be adjusted.

Column 4: Fol (folio reference)

This column contains the folio (page) reference number from the debtors ledger. Each debtor has their own account page in the debtors ledger, and this number helps you find it quickly. For example, "D1" means the debtor's account is on page D1 of the debtors ledger. Posting to individual debtor accounts happens on a daily basis, so you complete this column each day.

Column 5: Debtors allowances

This is where you record the selling price (total value) of the goods returned by the customer. This is the amount by which you need to reduce what the customer owes you. If goods were sold for R500 and the customer returns them, you write R500 in this column.

At the bottom of this column, you:

Calculate the monthly total of all returns (marked with a reference like B4/N2)
This total gets posted to the general ledger accounts

Column 6: Cost of sales

Here you record the cost price of the goods that were returned, not the selling price. This is the amount you originally paid for the goods. If you sold goods for R500 but they only cost you R250 to buy, you write R250 in this column.

At the bottom of this column, you:

Calculate the monthly total of cost of sales for returned goods (marked with a reference like B3/N3)
This total also gets posted to the general ledger

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Important distinction: The debtors allowances column uses selling price, while the cost of sales column uses cost price. These are different amounts!

Understanding the folio references

At the bottom of the journal, you'll see references like B4/N2 and B3/N3. These are folio references to the general ledger. They tell you which page in the general ledger each total should be posted to:

B4/N2 means the debtors allowances total goes to page B4 and then to page N2 in the general ledger
B3/N3 means the cost of sales total goes to page B3 and then to page N3 in the general ledger

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These references create an audit trail so you can trace where every figure came from.

Worked example: Enough Traders

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Worked Example: Recording Returns in the Debtors Allowances Journal

Scenario: On 8 May 2010, S. Moila returned goods with a selling price of R500. The business uses a mark-up of 66⅔% on cost price.

Step 1: Calculate the cost price of the returned goods

With a mark-up of 66⅔%, the relationship is:

If cost = 100%, then selling price = 166⅔%
Therefore: Cost price = Selling price $\times \frac{100}{166.67}$
Cost price = R500 $\times \frac{100}{166.67}$ = R300

However, using the actual figures from the example:

Doc	Day	Debtors	Fol	Debtors Allowances	Cost of sales
33	8	S. Moila	D1	500	250
				1 800	900
				B4/N2	B3/N3

Step 2: Understanding what this tells us:

Credit note 33 was issued on day 8 to S. Moila
S. Moila's account is on page D1 in the debtors ledger
The selling price of returned goods was R500 (this reduces what S. Moila owes)
The cost price of these goods was R250 (this is what the goods cost the business)
The monthly totals are R1 800 for debtors allowances and R900 for cost of sales
These totals get posted to the general ledger using the folio references shown

Practical application: Activity 7 scenario

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Worked Example: June 2010 Transactions for Lonely Traders

The business uses a 66⅔% mark-up. Let's process the following transactions:

Transaction 1 (8 June): M. Nelson returned R300 worth of stock previously bought from the business. Credit note 24 was issued.

Transaction 2 (22 June): N. Rossouw demands a discount of R100 on his account because goods were delivered late. The discount was granted. Credit note 25 was issued.

Transaction 3 (26 June): J. Abrahams returned stock to the value of R120. Credit note 26 was issued.

Step 1: For each transaction, you need to:

Enter the credit note number
Record the day
Write the debtor's name
Find their folio reference
Calculate the selling price (debtors allowances column)
Calculate the cost price (cost of sales column)

Step 2: Calculating cost price with 66⅔% mark-up

The formula is: Cost price = Selling price $\times \frac{100}{166.67}$

For R300 return: $\text{Cost} = \text{R}300 \times \frac{100}{166.67} = \text{R}180$

For R100 discount: $\text{Cost} = \text{R}100 \times \frac{100}{166.67} = \text{R}60$

For R120 return: $\text{Cost} = \text{R}120 \times \frac{100}{166.67} = \text{R}72$

Tips for completing a debtors allowances journal

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Helpful Tips for Success:

Always use credit note numbers in sequence - this helps prevent fraud and makes it easier to find specific transactions
Check your mark-up calculations - make sure you understand whether the business uses mark-up on cost or margin on selling price
Post to debtors ledger daily - don't wait until month-end; this keeps customer accounts up to date
Complete folio references accurately - these create the audit trail that connects all your books
Remember the two different amounts - debtors allowances (selling price) and cost of sales (cost price) are never the same unless there's no mark-up
Total both columns at month-end - both totals are needed for posting to the general ledger

Common mistakes to avoid

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Watch Out for These Common Errors:

Don't confuse returns with sales - the debtors allowances journal is only for goods coming back, not going out
Don't forget to issue credit notes - every return needs a proper credit note for control purposes
Don't mix up cost price and selling price - double-check which column needs which figure
Don't forget your mark-up calculation - this affects the cost of sales figure
Don't leave out folio references - these are essential for the audit trail

Remember!

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Key Points to Remember:

The debtors allowances journal records goods returned by customers who bought on credit
Each return requires a credit note issued to the customer
The journal has two key money columns: debtors allowances (selling price) and cost of sales (cost price)
Folio references connect the journal to both the debtors ledger (individual accounts) and the general ledger (total accounts)
Posting to individual debtor accounts happens daily, while totals are posted to the general ledger at month-end
Always check your mark-up calculations to find the correct cost price from the selling price

Debtors Allowances Journal (Grade 10 NSC Matric Accounting): Revision Notes