[Music] good day great nine learners welcome to tumamina teaching you are tuned into your first lesson for term three ems financial literacy in term three we will be looking at creditors and in this lesson specifically we will look at creditors and the accounting equation i'm juliana lowe and this is my tumamina teaching so first let's look at what a creditor is creditors are suppliers that allow businesses to buy items and only pay for them later the benefits of purchasing on credit is that goods can be received and sold before the goods have to be paid and this of course helps with the businesses cash flow when the business purchases goods items or services on credit the person or the business from who we purchase is known as the creditor a creditor is a current liability for the business because the business owes the creditor money okay so let's take this back to the accounting cycle and look at a few creditor examples and the effect on the accounting equation so let's look at the first transaction that took place on the first of the month the business received an invoice from iggy traders for goods amounting to six thousand rand less ten percent trade discount so what is a trade discount a trade discount is a discount that manufacturers and retailers give to businesses when purchasing in large quantities this trade discount will not be shown in the financial records of the business [Music] the cost price of the goods is the cost after the discount has been subtracted how is trade discount calculated before we look at our first example let's just quickly first see what a trade discount is [Music] let's see if you can calculate the new purchase price on your own [Music] ten percent of six thousand rand equals six hundred rand so that means six thousand grand minus six hundred grand equals five thousand four hundred rand so let's look at what effect this transaction will have on the accounting equation trading stock is a current asset for the business when trading stock is purchased the assets increase by the cost price amount however in this case the business does not pay cash for the trading stock because it is bought on credit from the creditor the debt to the creditors is a current liability and thus increases the liabilities by the purchase price amount when items are bought on credit the supplier will give the business an original invoice the business buys items from different suppliers therefore different invoices with different invoice numbers will be received the business then will re-number the invoice and record them in the creditors journal which we will discuss in the next lesson now that you have all the information let's look at a different example this business brought stationery to the value of 670 rand on credit from squirrel traders the stationery is an expense for the business therefore when stationary is purchased owner's equity decreases the business does not however pay cash for the stationery because it is bought on credit from a creditor the debt to creditors is a liability which increases by the purchase amount let's look at the last example the business paid veggie world 689 ran by means of an eft to settle their debt if the business pays off its debt to a creditor their cash which is an asset will decrease the amount owed to the creditor decreases creditors are a current liability for a business and therefore the current liabilities will decrease the source documents in this transaction will be the eft reference number when we pay off our date to creditors we record this in the cash payments journal grade nines and that's a wrap in the next lesson we will explore source documents and journals a bit more [Music] you