What account 6010 is for
An organisation almost never pays for everything the moment it receives it: materials arrive today and the money goes out a week later; electricity is used for a month and the bill comes at the end of the month. In between, the organisation owes the supplier. This debt is kept in group 6000, which has two sub-accounts (para. 252):
| Sub-account | What is recorded |
|---|---|
| 6010 "Payables to suppliers and contractors" | Current debt to suppliers and contractors (para. 254) |
| 6020 "Notes (bills of exchange) issued" | Debt for which the organisation has issued a note (para. 256) |
The debt can come from many sources: inventories, work performed and services rendered, including transport services (para. 252). Organisations acting as general contractors, such as construction and installation or research organisations, also keep their debt to subcontractors here (para. 253).
A liability account: what that means
In the chart of accounts, account 6000 has type "P" (liability). Under paragraph 3, in a liability account the balance and increases of obligations are shown on the credit side and decreases on the debit side. So:
- something is received from a supplier and the debt grows: 6010 is credited;
- the debt is paid or closed in another way: 6010 is debited;
- the credit balance shows how much the organisation currently owes its suppliers.
What goes to the credit side
Under paragraph 254, 6010 is credited with the amount of inventories and assets actually received by the organisation and of work and services accepted; the debit side shows the account for those items or the relevant expense account. Examples from the table in paragraph 257: receipt of materials, goods and equipment for installation, VAT on inventories purchased, services obtained for production and management (energy, gas, steam, water), and services relating to future periods.
What goes to the debit side
From the same table, the entries that reduce the debt: payment from the bank account, offsetting an advance paid earlier, writing off a debt whose limitation period has expired, and issuing a promissory note in place of the debt. The table in paragraph 296 adds one more route: paying the debt out of a short-term bank loan.
Each supplier separately
Under paragraph 255, analytical accounting for 6010 is kept separately for each supplier and contractor. This is a very practical requirement: the total balance says "we owe 50 mln to everyone together", but only the analytical records show exactly whom you need to pay and how much.
Points to watch
- Short or poor-quality deliveries. If the quality, quantity or price of the items received does not match the contract, under paragraph 254, account 6010 is credited with the difference in correspondence with 4860 "Claims receivable": Dr 4860 Cr 6010 (para. 216, row 13).
- Closing a debt with an advance. If money was paid to the supplier in advance, it sits in 4310-4330. Once the goods arrive, the advance is offset against the debt: Dr 6010 Cr 4310-4330 (para. 257, row 14). Without this entry, one supplier will show both a receivable (4310) and a payable (6010) at the same time (practical tip).
- A debt whose limitation period has expired. It is closed through 9360 "Income from writing off payables to creditors and unclaimed (deposited) amounts": Dr 6010 Cr 9360 (para. 257, row 15).
- A debit balance on 6010 (practical tip). A liability account has a credit balance. If a supplier shows a debit balance, usually it was paid twice or an advance was recorded directly in 6010 instead of 4310, so check the entries.
Main journal entries 12
Debit and credit are as in the model table of Appendix 2 to NAS No. 21. The transaction text briefly restates the table row.
| Transaction | Debit | Credit | Source |
|---|---|---|---|
| Materials received from a supplier | 1010–1090 | 6010 | NAS No. 21, para. 257, row 3 |
| Goods received from a supplier | 2910–2990 | 6010 | NAS No. 21, para. 257, row 10 |
| Equipment for installation received from a supplier | 0710, 0720 | 6010 | NAS No. 21, para. 257, row 1 |
| VAT on inventories purchased recognised | 4410 | 6010 | NAS No. 21, para. 257, row 6 |
| Supplier's work and services (including energy, gas, steam, water) accepted for production, service facilities and management needs | 2010, 2310, 2510, 2710, 9420 | 6010 | NAS No. 21, para. 257, row 7 |
| Work and services related to sales accepted from a supplier | 9410 | 6010 | NAS No. 21, para. 257, row 11 |
| A claim lodged against a supplier for a shortage found on receipt | 4860 | 6010 | NAS No. 21, para. 216, row 13 |
| Debt to a supplier or contractor paid from bank accounts | 6010 | 5110–5530 | NAS No. 21, para. 257, row 13 |
| An advance paid earlier offset when settling a supplier's invoice | 6010 | 4310–4330 | NAS No. 21, para. 257, row 14 |
| Payables whose limitation period has expired written off | 6010 | 9360 | NAS No. 21, para. 257, row 15 |
| A promissory note issued to a supplier to settle the debt | 6010 | 6020 | NAS No. 21, para. 257, row 16 |
| Debt to a supplier paid out of short-term bank loans and borrowings | 6010 | 6810–6820 | NAS No. 21, para. 296, row 3 |
Example
At the start of the month "Sangzor un" LLC (a fictional flour mill) has a credit balance of 7,000,000 soums on 6010: this is its debt to the electricity supplier for last month. Last month it also paid an advance of 10,000,000 soums to its wheat supplier (Dr 4310 Cr 5110, para. 226, row 16). During the month:
| No. | Transaction | Dr | Cr | Amount, soums |
|---|---|---|---|---|
| 1 | Wheat received (excluding VAT) | 1010 | 6010 | 40,000,000 |
| 2 | VAT on the wheat (12%) | 4410 | 6010 | 4,800,000 |
| 3 | Electricity for the mill for the current month | 2010 | 6010 | 3,500,000 |
| 4 | Advance paid to the wheat supplier offset | 6010 | 4310 | 10,000,000 |
| 5 | Remaining debt for the wheat paid from the bank account | 6010 | 5110 | 34,800,000 |
| 6 | Last month's electricity debt paid | 6010 | 5110 | 7,000,000 |
VAT: 40,000,000 × 12% = 4,800,000 soums. The total debt for the wheat is 44,800,000 soums; after deducting the advance, 44,800,000 − 10,000,000 = 34,800,000 soums was paid from the bank account. For simplicity, the example shows VAT only on the wheat purchase.
Analytical records by supplier (credit balance), soums:
| Supplier | Opening | Credit turnover | Debit turnover | Closing |
|---|---|---|---|---|
| Wheat supplier | 0 | 44,800,000 | 44,800,000 | 0 |
| Electricity supplier | 7,000,000 | 3,500,000 | 7,000,000 | 3,500,000 |
| Total 6010 | 7,000,000 | 48,300,000 | 51,800,000 | 3,500,000 |
Check: 7,000,000 + 48,300,000 − 51,800,000 = 3,500,000 soums. At the end of the month the company owes only for the current month's electricity, and the account with the wheat supplier is closed (example prepared by the author).