That control accounts are normally only used in manual accounting systems.

7 That control accounts are normally only used in manual accounting systems.

Answers to activities

31.1 These errors tend to be detected either as the result of someone drawing attention to an entry that appears to be incorrect or as the result of sample checking of the entries that have been made in the accounting books. A debtor may, for example, question whether the amount on an invoice is correctly summed or suggest that one of the invoices listed in the debtor’s monthly state- ment had nothing to do with the debtor. One of the tasks that auditors carry out involves check- ing a sample of the transactions during a period so as to determine the level of errors within the entries made relating to them. If the level of error detected is considered material, a more exten- sive check will be carried out.

31.2 (4) The other side of this double entry was to the debit of the Returns Inwards Account. (5) The other side of the double entry was done earlier at the time when the individual amounts

received from debtors were posted as credits to the individual debtor accounts in the Sales Ledger. That is, the other side of this double entry was all the the debit entries to the Cash Book (see Chapter 13). The posting of each receipt as a credit to the individual debtor accounts done in step (1) is actually a memorandum entry and does not form part of the double entry system. So, in effect, the Sales Ledger has been taken out of the double entry system and is now a Memorandum book. To summarise, step (5) is actually the credit side of the double entry whose debit side is all the debit entries in the Cash Book.

(6) The other side of the double entry was done earlier at the time when each sale was posted from the Sales Day Book to the individual debtors accounts in the Sales Ledger. That is, the other side of this double entry was the credit entry made when the total of the sales shown in the Sales Day Book was posted to the Sales Account in the General Ledger (see Chapter 14). The posting of each sale as a debit to the individual debtor accounts done in step (2) is actu- ally a memorandum entry and does not form part of the double entry system. To summarise, step (6) is actually the debit side of the double entry whose credit side is all the credit entries in the Sales Account.

Part 4 l Adjustments for financial statements

Review questions

31.1 You are required to prepare a sales ledger control account from the following for the month of November:

20X7 £ Nov

1 Sales ledger balances 23,220 Totals for November: Sales journal

14,194 Returns inwards journal

826 Cheques and cash received from customers

17,918 Discounts allowed

312 Nov

30 Sales ledger balances 18,358

31.2A You are required to prepare a purchases ledger control account from the following for the month of April. The balance of the account is to be taken as the amount of creditors as on 30 April.

20X5 £ April

1 Purchases ledger balances 11,241 Totals for April: Purchases journal

6,100 Returns outwards journal

246 Cheques paid to suppliers

8,300 Discounts received from suppliers

749 April

30 Purchases ledger balances ?

31.3 Prepare a sales ledger control account from the following:

20X9 £ March

1 Debit balances 12,271 Totals for March: Sales journal

9,334 Cash and cheques received from debtors

11,487 Discounts allowed

629 Debit balances in the sales ledger set off against credit balances in the purchases ledger

82 March 31 Debit balances

? Credit balances

31.4A Prepare a sales ledger control account from the following information for October 20X6, carrying down the balance at 31 October:

20X6 £ Oct

1 Sales ledger balances 28,409 Oct

31 Sales journal 26,617 Bad debts written off

342 Cheques received from debtors

24,293 Discounts allowed

416 Cheques dishonoured

120 Returns inwards

924 Set-offs against balances in purchases ledger

31.5 The trial balance of Outsize Books Ltd revealed a difference in the books. In order that the error(s) could be located it was decided to prepare purchases and sales ledger control accounts.

From the following prepare the control accounts and show where an error may have been made:

Chapter 31 l Control accounts

20X8 £ Jan

1 Purchases ledger balances 19,420 Sales ledger balances

28,227 Totals for the year 20X8 Purchases journal

210,416 Sales journal

305,824 Returns outwards journal

1,452 Returns inwards journal

3,618 Cheques paid to suppliers

205,419 Petty cash paid to suppliers

62 Cheques and cash received from customers

287,317 Discounts allowed

4,102 Discounts received

1,721 Balances on the sales ledger set off against balances in the purchases ledger

640 Dec

31 The list of balances from the purchases ledger shows a total of £20,210 and that from the sales ledger a total of £38,374

31.6 From the following figures, compile debtors ledger and creditors ledger control accounts for the month, and ascertain what the net balances of the respective ledgers should be on 31 January 20X0.

Balances on 1 January 20X0

£ Debtors ledger – Dr

46,462 Cr

245 Creditors ledger – Dr

1,472 Cr

Total for the month to 31 January 20X0

£ Purchases

76,474 Sales

126,024 Purchase returns

2,154 Debtors accounts settled by contra accounts with creditors

455 Bad debt written off

1,253 Discounts and allowances to customers

746 Cash received from customers

120,464 Cash discount received

1,942 Cash paid to creditors

70,476 Cash paid to customers

31.7A

£ Sales ledger balances, 1 July 20X9 – Debit 20,040

56 Purchases ledger balances, 1 July 20X9 – Debit

– Credit

14,860 Activities during the half-year to 31 December 20X9: Payments to trade creditors

– Credit

93,685 Cheques from credit customers

119,930 Purchases on credit

95,580 Sales on credit

124,600 Bad debts written off

204 Discounts allowed

3,480 Discounts received

2,850 Returns inwards

1,063 Returns outwards

240 Sales ledger credit balances at 31 December 20X9

37 Purchases ledger debit balances at 31 December 20X9

Part 4 l Adjustments for financial statements

‘ During the half year, debit balances in the sales ledger, amounting to £438, were transferred to

the purchases ledger.

Required:

Prepare the sales ledger control account and the purchases ledger control account for the half-year to 31 December 20X9.

31.8A The following extracts have been taken from the subsidiary books of the business owned by D Jenkinson for the month of April 20X0.

Purchases Day Book Returns Outwards Day Book

£ Apr

3 W Allen

50 7 J Morris

Apr 14 W Allen

80 17 T Sage

29 T Sage

24 F Wilding

Cash Book (Credit side)

9 T Sage

Apr 30 Creditor W Allen 180 18 F Wilding

Debtor W Allen 180 24 J Morris

being transfer 27 W Allen

from sales ledger to purchases ledger

It should be noted that the balances in the accounts of D Jenkinson’s suppliers on 1 April 20X0 were as follows:

W Allen

J Morris

T Sage

F Wilding

Required:

(a) The name of the source document which will have been used for making entries in the (i ) purchases day book (ii ) returns outwards day book.

(b) The name of two subsidiary books (other than those shown in the extracts above) which could form part of D Jenkinson’s accounting system. In the case of one of the subsidiary books chosen, explain its purpose.

account should be balanced at the end of the month.)

(c) The account of T Sage in D Jenkinson’s purchases ledger for the month of April 20X0. (The

(d ) D Jenkinson’s purchases ledger control account for the month of April 20X0. (The account should be balanced at the end of the month.) (e) Advice for D Jenkinson on two ways in which he might find the purchases ledger control account useful.

(Southern Examining Group: GCSE)

31.9 The financial year of The Better Trading Company ended on 30 November 20X7. You have been asked to prepare a Total Debtors Account and a Total Creditors Account in order to produce end-of-year figures for Debtors and Creditors for the draft final accounts.

Chapter 31 l Control accounts

You are able to obtain the following information for the financial year from the books of original entry: £ Sales

– cash 344,890 – credit

268,187 Purchases – cash

14,440 – credit

496,600 Total receipts from customers

600,570 Total payments to suppliers

503,970 Discounts allowed (all to credit customers)

5,520 Discounts received (all from credit suppliers)

3,510 Refunds given to cash customers

5,070 Balance in the sales ledger set off against balance in the purchases ledger

70 Bad debts written off

780 Increase in the provision for bad debts

90 Credit notes issued to credit customers

4,140 Credit notes received from credit suppliers

1,480 According to the audited financial statements for the previous year debtors and creditors as at

1 December 20X6 were £26,555 and £43,450 respectively.

Required:

Draw up the relevant Total Accounts entering end-of-year totals for debtors and creditors. (Association of Accounting Technicians)

(a) Why are many accounting systems designed with a purchases ledger (creditors ledger) control account, as well as with a purchases ledger (creditors ledger)? (b) The following errors have been discovered: (i ) An invoice for £654 has been entered in the purchases day book as £456; (ii ) A prompt payment discount of £100 from a creditor had been completely omitted from

the accounting records; (iii ) Purchases of £250 had been entered on the wrong side of a supplier’s account in the pur-

chases ledger; (iv ) No entry had been made to record an agreement to contra an amount owed to X of £600

against an amount owed by X of £400; (v)

A credit note for £60 had been entered as if it was an invoice. State the numerical effect on the purchases ledger control account balance of correcting each of these items (treating each item separately).

data recording. Do you consider that this trend will eventually remove the need for control

(c) Information technology and computerised systems are rapidly increasing in importance in

accounts to be incorporated in the design of accounting systems? Explain your answer briefly. (Association of Chartered Certified Accountants)

31.11 Control Accounts are used mainly for debtors and creditors. Explain: (a) Why it may be appropriate to use control accounts.

(b) The advantages of using them.

You can find a range of additional self-test questions, as well as material to help you with your studies, on the website that accompanies this book at www.pearsoned.co.uk/wood You can find a range of additional self-test questions, as well as material to help you with your studies, on the website that accompanies this book at www.pearsoned.co.uk/wood

Errors not affecting trial balance

agreement