Creditors’ Payment Schedule (Creditors’ Budget) Revision Notes for Grade 12 NSC Matric Accounting

Creditors' Payment Schedule (Creditors' Budget)

What is a creditors' payment schedule?

A creditors' payment schedule (also called a creditors' budget) is a financial planning tool that helps businesses predict when they will need to pay their suppliers for goods purchased on credit. This schedule forms part of the second step in preparing the main budget and is essential for managing cash flow effectively.

The creditors' payment schedule shows exactly when cash payments will be made to suppliers, allowing businesses to plan their cash requirements and avoid cash flow problems.

Key considerations when preparing a creditors' budget

Understanding the timing and calculation requirements is crucial for accurate budget preparation. When calculating a creditors' payment schedule, you must consider two crucial factors:

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Essential Factors for Creditors' Budget:

When and how much stock is purchased on credit - You need to know the value and timing of all credit purchases
When is the payment due - Most commonly, creditors are paid in full during the month following the purchase

Understanding payment timing

The payment timing rules form the foundation of creditors' budget calculations. The most important rule to remember is: Creditors are paid in full in the month following purchases

This means:

If you buy goods on credit in January, you pay for them in February
If you buy goods on credit in February, you pay for them in March
And so on...

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Critical Assumptions to Remember:

Stock balance assumption: The stock balance at the beginning of each month will be the same every month (opening balance maintained as base stock)
Total purchases relationship: When stock levels are maintained, total purchases equal cost of sales

Step-by-step calculation process

The creditors' payment schedule follows a systematic approach that ensures accurate cash flow planning.

Step 1: Determine the budget months

Identify the period for which you're preparing the creditors' payment schedule (e.g., January to March 2014).

Step 2: Calculate purchases if not given directly

When purchase amounts aren't provided, you can calculate them using the sales forecast and mark-up information:

Formula for calculating cost of sales from sales:

If mark-up is 100% on cost price:
- Cost price: 100%
- Profit: 100%
- Sales price: 200%
Therefore: Cost of sales = Sales × $\frac{100}{200}$

Step 3: Determine cash vs credit purchases

Typically, businesses make both cash and credit purchases:

Cash purchases: Usually around 20% of total purchases (paid immediately)
Credit purchases: Usually around 80% of total purchases (paid the following month)

Step 4: Create the payment schedule

Map each month's credit purchases to the month when payment will be made (following month).

Worked example: KIMA TRADERS

Let's apply these concepts to a practical scenario to demonstrate the complete calculation process.

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Worked Example: KIMA TRADERS Creditors' Payment Schedule

Given information:

Sales forecast: January R126 000, February R130 000, March R144 000
Mark-up: 100% on cost price
Cash purchases: 20% of total purchases
Credit purchases: 80% of total purchases, paid the following month
Creditors balance at 31 December 2013: R60 000

Step-by-step solution:

Calculating cost of sales (purchases):

January: R126 000 × $\frac{100}{200}$ = R63 000
February: R130 000 × $\frac{100}{200}$ = R65 000
March: R144 000 × $\frac{100}{200}$ = R72 000

Determining cash and credit purchases:

Month	Total Purchases	Cash Purchases (20%)	Credit Purchases (80%)
January	R63 000	R12 600	R50 400
February	R65 000	R13 000	R52 000
March	R72 000	R14 400	R57 600

Creating the payment schedule:

Month of Purchase	Credit Purchase Amount	Month of Payment
December 2013	R60 000	January 2014
January 2014	R50 400	February 2014
February 2014	R52 000	March 2014

Final creditors' payment schedule:

Budget Month	Payments to Creditors
January	R60 000
February	R50 400
March	R52 000

Integration with cash budget

The creditors' payment schedule is a vital component that directly feeds into the broader cash budget planning process. The creditors' payment schedule directly feeds into the cash budget under "Cash Payments":

Cash Payments	January	February	March
Cash Purchases	R12 600	R13 000	R14 400
Payments to Creditors	R60 000	R50 400	R52 000

This integration ensures that all cash outflows are properly accounted for in the master budget.

Exam tips

Success in creditors' budget questions requires attention to detail and systematic approach to calculations.

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Essential Exam Strategies:

Always check the payment terms - Don't assume payments are made the following month unless specifically stated
Watch for opening balances - These represent purchases from the previous period that need to be paid
Calculate carefully - When purchases aren't given, use the sales figures and mark-up to calculate cost of sales
Show your working - Break down calculations step by step
Double-check totals - Ensure your payment schedule balances correctly

Common mistakes to avoid

Understanding common pitfalls helps prevent errors in calculations and improves accuracy.

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Critical Mistakes to Avoid:

Confusing cash purchases with credit purchases
Forgetting to include the opening creditors balance in the first payment month
Mixing up which month payments are made (remember: following month rule)
Not calculating the correct cash/credit split when given percentages

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Key Points to Remember:

Creditors' payment schedule predicts when you'll pay suppliers for credit purchases
Payment timing: Credit purchases are typically paid in full the month after purchase
Two types of purchases: Cash (paid immediately) and Credit (paid later)
When stock levels are maintained: Total purchases = Cost of sales
Always include opening creditors balance in your first payment month

Creditors’ Payment Schedule (Creditors’ Budget) (Grade 12 NSC Matric Accounting): Revision Notes