Advanced-Level
Control Accounts
A.
Objects and advantages of self-balancing ledgers
If a firm has a large number of debtors and/or creditors the process of taking a trial balance can
become prolonged. With a large number of accounts there is also a greater possibility of an error
occurring within one of the individual debtor's or creditor's accounts.
It would be of great assistance, therefore, if the debtors ledger could be agreed or balanced
separately and similarly the creditors ledger. In this way an error, on say a debtor's account will be
isolated, rather than appear as an unidentifiable error on the full trial balance.
The advantages of maintaining a system of control accounts are:
(1) As control accounts substitute the totals from schedules of debtors and creditors, a complete
(2)
(3)
(4)
trial balance may be compiled before the individual personal ledger balances are abstracted.
Thus it lessens the time and labour involved in preparing a trial balance.
As errors are localised, differences on a trial balance can be traced to the particular ledger
where the errors exist and the work of checking can be restricted to that ledger. It saves time,
money and labour and delay in balancing is minimised.
The system operates as a control over the personal ledgers and constitutes a valuable feature
of the system of internal check. It safeguards the records from unintentional errors or
fraudulent entries.
Control accounts provide management with immediate access to current totals of debtors
and creditors, and furthermore it reduces risk of error by posting totals rather than individual
items.
B.
Preparation of control accounts
The information required for the preparation of the debtors ledger control account (total
debtors account/debtors control account) can be found as follows:
Debits
Credit sales
Bad debts recovered
Dishonoured cheques
Source (book of prime entry)
Sales day book
Journal
Cash book
Dishonoured bills
Refunds to debtors
Correction of errors
Journal
Cash book
Journal
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Advanced-Level
Credits
Source (book of prime entry)
Sales returns
Cash received from debtors
Cash received from bad debts recovered
Discounts allowed
Bad debts written off
Bills receivable
Contra entries
Correction of errors
Sales returns book
Cash book
Cash book
Cash book - discount column
Journal
Journal
Journal
Journal
The purchases ledger control account (bought ledger control account/total creditors
account/creditors control account) would be built up from the following sources:
C.
Debits
Purchases returns
Payments to creditors
Discounts received
Bills payable
Contra entries
Correction of errors
Source (book of prime entry)
Purchases returns book
Cash book
Cash book - discount column
Journal
Journal
Journal
Credits
Credit purchases
Refunds from creditors
Dishonoured bills payable
Correction of errors
Source (book of prime entry)
Purchases day book
Cash book
Journal
Journal
Two different arrangements for control accounts in the ledger
1. Individual debtors/creditors are parts of the ledger while the control accounts are only
memorandum records.
2. The control accounts are parts of the ledger while the individual debtors/ creditors are
subsidiary records only.
These different arrangements will not affect the preparation and reconciliation of the control
accounts but correction of errors may not be the same under these two systems.
Example
Prepare the journal entries for the correction of the following errors under two different systems.
i)
Sales day book was undercast by $200.
ii)
A refund of $300 to a debtor was posted as a receipt from him.
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Advanced-Level
iii)
A debit balance of $185 had been omitted from the schedule of debtors.
iv)
$400 goods were returned from Mr. Johnson and the only record in the book was the
crossing out of the original entry in Johnson's account.
A credit note of $50 received was completely omitted from the books.
v)
Control Account (Memorandum records)
i)
ii)
Suspense account
200
Sales
200
Debtors a/c
600
Suspense a/c
iii)
Debtors (Trial bal)
Suspense a/c
iv)
v)
Sales Returns
D.
i)
Debtors Control a/c
200
Sales
200
ii)
No entry
iii)
No entry
iv)
Sales Returns
600
185
185
400
Suspense a/c
400
Creditors
50
Purchases Returns
Control Account (Part of the ledgers)
Debtors Control
v)
Creditors Control
50
Purchases Returns
400
400
50
50
Special points to be noted in preparation of control accounts
1. Bad debts recovered
Bad debts recovered for the period $ 1 000
Cash received from debtors
60 000
(Including cash from bad debts recovered)
Show the extract of the sales ledger control account.
Sales Ledger Control a/c
Bad Debts Recovered
1000
Cash received
60000
OR
Sales Ledger Control a/c
Bad Debts Recovered
1000
Cash received
Cash from bad debt recovered
59000
1000
OR
Sales Ledger Control a/c
Cash received
59000
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Advanced-Level
2. Set off
Total credit sales
$ 150 000
Total credit purchases
90 000
During the year a large supplier, B Ltd, purchased $5 000 worth of goods from our company.
i. The amount, $5 000, owed by B Ltd was set off against its account balance, $8 000, in the
purchases ledger at the year end. Show the contra entries in the relevant accounts.
Sales Ledger - B Ltd
Sales
5000
Contra – B Ltd
5000
Purchases Ledger – B Ltd
Contra – B Ltd
5000
Balance b/d
8000
OR
Purchases Ledger – B Ltd
Sales
ii.
5000
Balance b/d
8000
Our company decided to keep an account for B Ltd in the purchases ledger only and no
contra entries at the year end. Show the extract of the control accounts.
Debtors Control a/c
Credit Sales
150000
Contra – Creditors Control
5000
Creditors Control a/c
Contra – Debtors Control
5000
Credit Purchases
90000
OR
Debtors Control a/c
Credit Sales (150000 – 5000)
145000
Creditors Control a/c
Credit sales to supplier
5000
Credit Purchases
90000
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Advanced-Level
3. Minor balances in sales/purchases ledger
Transactions for the year:
i. Credit sales to A, B, C were $100, $200 and $300 respectively.
ii. After the full payment, A returned part of the goods and full allowance of $50 was
given.
iii. Credit purchases to X, Y, Z were $200, $400 and $600 respectively.
iv. After full payment to X, we returned goods worth $100 to him.
Prepare:
a. The accounts in sales ledger and purchases ledger.
b. The list of debtors and the list of creditors at the year end.
c. The sales ledger control account and the purchases ledger control account.
d.
The debtors and creditors balances in the trial balance.
a.
Sales Ledger - A
Sales
100
Cash
Sales Returns
100
50
Sales Ledger - B
Sales
200
Sales Ledger - C
Sales
300
Purchases Ledger - X
Cash
200
Purchases Returns
100
Purchases
200
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Advanced-Level
Purchases Ledger - Y
Purchases
400
Purchases Ledger - Z
Purchases
600
b.
List of Debtors
List of Creditors
A
(50)
X
(100)
B
200
Y
400
C
300
Z
600
450
900
c.
Sales Ledger Control
Sales
Balance c/d
600
50
Sales Returns
Cash
100
Balance c/d
500
650
Balance b/d
500
50
650
Balance b/d
50
Purchases Ledger Control
Purchases Returns
100
Purchases
Cash
200
Balance c/d
Balance c/d
100
1000
1300
Balance b/d
1200
100
1300
Balance b/d
1000
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Advanced-Level
d.
Trial Balance (Extract)
Dr.
Debtors (500+100)
Cr.
600
Creditors (50 + 1000)
1050
Exercise One
The balances on the personal ledger control account of Galaxy Ltd at 31st December 1992
were as follows:
Purchases ledger
Sales ledger
The following transactions take place during 1993:
Total purchases
Total sales
Cash purchases
Cash sales
Returns inward
Returns outward
Dr.
$960
$ 97 550
Bills received
Bills dishonoured
Bills payable to creditors
Noting charges on dishonoured bills
Payments to creditors
Receipts from cash and credit sales
Receipts from bad debts recovered
Bad debts written off
Increase in provision for bad debts
Refunds of credit customers' overpayments
Refunds given to cash customers
Allowances to trade debtors on goods damaged
Interest charged to customers
Cash received in respect of debit balances in purchases ledger
Balance in the sales ledger set off against balance in the
purchases ledger
Cr.
$ 56 900
$480
194000
251000
6000
5000
500
900
7000
1000
6500
50
110000
180000
2000
5500
1500
700
330
900
200
600
2500
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Advanced-Level
Balances at 31st December 1993 included:
Sales ledger
Purchases ledger
$ 1800 Cr.
760 Dr.
Prepare the sales ledger control account and the purchases ledger control account.
Sales Ledger Control Account
Balance b/d
Credit Sales (251000-5000)
Bills dishonoured
97550
Balance b/d
480
246000
Sales returns
500
1000
Noting charges
50
Bills receivable
Cash received from debtors
175000
(180000 – 5000)
Bad debts recovered
2000
Refunds to debtors
700
Cash received from bad debts
Interest charged to customers
200
recovered
1800
Bad debts
Balance c/d
7000
Allowances to damaged goods
Contra
Balance c/d
349300
2000
5500
900
2500
155420
349300
Purchases Ledger Control Account
Balance b/d
960
Balance b/d
Purchases returns
900
Credit Purchases (194000 – 6000) 188000
Payments to creditors
110000
Contra
2500
Bill payable
6500
Balance c/d
125400
246260
56900
Cash received (overpayment)
600
Balance c/d
760
246260
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Advanced-Level
E.
Reconciling the lists of balances with the control accounts
After preparing the sales ledger control account and the purchases ledger control account,
list of debtors and list of creditors will be extracted from the sales ledger and purchases ledger
respectively. The last step is to reconcile the balances from the lists of debtors/creditors with
the sales/purchases ledger control accounts in order to uncover and locate errors in the books.
Example One
The net total of balances in the trial balance which was extracted from the sales ledger as
on 31st March, 1993 amounted to $50 659 which did not agree with the balance on the sales
ledger control account, 49 880. On checking, the following errors were discovered:
1.
2.
3.
4.
The list of balances had been overcast by $200.
The sales day book had been undercast by $1 000.
A sales return of $600 was completely omitted from the books.
A balance owing by Alan had been written off as irrecoverable and debited to bad
debts, but no entry had been made in the control account.
You are required to prepare:
(a) The journal entries to correct the above errors.
(b) A statement showing the computation of the corrected sales ledger net balance.
(c) The sales ledger control account showing the necessary adjustments.
a)
Journal
Date
1
Particular
Suspense a/c
Dr.
200
Debtors (Trial Balance)
2
Suspense a/c
200
1000
Sales
3
Sales Returns
Debtors
4
Cr.
1000
600
600
No entry
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Advanced-Level
b)
A statement for computation of the corrected sales ledger balance
$
Balance as per unadjusted sales ledger balance
50659
Less: Overcast of the list
200
Sales returns omitted
600
Balance as per corrected sales ledger balance
c)
$
800
49859
Sales Ledger Control Account
Balance b/d
Sales overcast
49880
1000
Sales returns
600
Bad Debts written off
421
Balance c/d
50880
49859
50880
Example Two
National Industries Limited maintains subsidiary ledgers for debtors and creditors and control
accounts in the General Ledger.
On October 31, 1993, the net total of balances extracted from the purchases ledger amounted
to $19 452, included a debit balance of $600, which did not agree with the balance on the creditors
control account. The following matters were discovered:
(1) Credit purchase of goods from White, $250 had been posted to the wrong side of his
account.
(2) A return of $330 to Smith was debited to his account but no other entry had been made
in the books.
(3) A debit balance of $70 in the purchase ledger had been taken out as a credit balance.
(4) A transfer of $110 from Fred's account in the purchase ledger to the credit of his
account in the sales ledger had not been entered in either control accounts.
You are required to prepare:
(a) The journal entries where necessary, to correct the errors.
(b) A statement reconciling the original net balances extracted from the purchases ledger
with the adjusted final balance on the creditors control account.
(c) The creditors control account showing the necessary adjustments and the balances on
the account BEFORE these adjustments.
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Advanced-Level
a)
Journal
Date
Particular
1
No entry
2
Creditors control
Dr.
330
Purchases returns
3
No entry
4
Creditors Control
330
110
Debtors Control
b)
Cr.
110
A statement for computation of the corrected purchases ledger balance
$
Balance as per unadjusted purchases ledger balance
19452
Add: Wrong posting to white a/c (250x2)
500
19952
Less: A debit balance extracted as a credit (70x2)
140
Balance as per corrected purchases ledger balance
c)
19812
Creditors Control a/c
Balance b/d
600
Balance b/d (Balancing fig.)
Contra: purchases returns
110
Balance c/d ((600+70)
Purchases returns omitted
330
Balance c/d (19812+670)
20482
21522
20852
670
21522
Exercise Two
Tuen Mun Ltd keeps control accounts for the purchases and sales ledgers. The following
details were extracted from the books for the month of March 1993:
11
Advanced-Level
$
Balances on 1 March 1993
Purchases ledger - debit
Purchases ledger - credit
Sales ledger - debit
Sales ledger - credit
Goods purchased on credit
Discounts allowed
Bad debts written off
Goods returned to suppliers
Discounts received
212
5 185
9 364
510
19 283
356
237
615
241
Cash received from credit customers
Legal expenses charged to customers
Provision for bad and doubtful debts
Total sales
Cash paid to creditors
Cash sales
Sales ledger credit balances on 31 March 1993
Purchases ledger debit balances on 31 March 1993
24 607
112
300
38 940
16 824
11 500
376
143
An investigation of the books of Tuen Mun Ltd revealed the following errors:
1. An invoice for $1 600 had been posted to a customer's account as $160;
2.
3.
4.
5.
6.
7.
A month's total of $7 859 in the purchases day book had been posted to the control
account as $7 589, although posted correctly to the purchases account;
Discounts received of $280 had been posted twice to a supplier's account;
A debit note $440 received from a customer had been completely forgotten;
A debit note $200 issued to a supplier had been credited to another supplier's account;
A refund of $120 to a debtors who had a credit balance in the books had been completely
omitted;
It was found that a major supplier, Smith, who had a credit balance of $1 200 on 31
March 1993 also owed Tuen Mun Ltd $300 because of a credit sales during the month. It
was the policy of the company to set off these balances.
Required:
a) Prepare control accounts for the month ended 31 March 1993 for the purchases ledger and for
the sales ledger BEFORE any adjustments are made to correct the errors;
b) Adjust the purchases ledger control account and the sales ledger control account after revealing
the errors;
c) Show your calculations of the net total of the balances on the purchases ledger and the net total
of the balances on the sales ledger BEFORE any adjustments are made to correct the errors.
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Advanced-Level
Sales Ledger Control a/c
Mar 1 Balance b/d
9364 Mar 1
Ledger expenses charged to debtors
Credit sales (38940 – 11500)
Balance c/d
112
27440
376
Balance b/d
510
Discounts allowed
356
Bad debts written off
237
Cash received from debtors
24607
Balance c/d
11582
37292
37292
Purchases Ledger Control a/c
Mar 1 Balance b/d
212 Mar 1
Balance b/d
Purchases returns
615
Credit purchases
Discounts received
241
Balance c/d
Cash paid to creditors
Balance c/d
5185
19283
143
16824
6719
24611
24611
Sales Ledger Control a/c
Balance b/d
11582
Balance b/d
376
Refund to debtors
120
Sales returns omitted
440
Balance c/d (376+120)
256
Contra
300
Balance c/d
11958
10842
11958
Purchases Ledger Control a/c
Balance b/d
143
Balance b/d
Contra
300
Purchases undercast
Balance c/d
6689
270
(7859 – 7589)
Balance c/d
7132
6719
143
7132
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Advanced-Level
A statement for reconciling the sales ledger account
$
$
Balance as per unadjusted net sales ledger (Balancing fig.)
9766
Add: Error in posting (1600-160)
1440
Refund to debtors
120
1560
11326
Less:
Sales returns omitted
440
Contra
300
740
Balance as per adjusted net sales ledger (10842 – 256)
10586
A statement for reconciling the purchases ledger account
$
$
Balance as per unadjusted net purchases ledger (Balancing fig.)
6966
Add: Discounts received doubled
280
7246
Less:
Error in purchases returns (200x2)
400
Contra
300
700
Balance as per adjusted net purchases ledger (6689 – 143)
6546
Exercise Three
The balances on the personal ledger control accounts of Gaiway Ltd. at 31st December 1977
were as follows：
Bought Ledger
Sales Ledger
Dr.$
96
97,550
Cr.$
56,900
48
The following transactions take place during 1978：
Purchases
Sales (including $2,540 cash sales)
$
194,720
251,160
Payments to suppliers
Allowances made by suppliers
Interest charged to customers
Receipts from credit customers (including $250 cheque dishonoured)
Bad debts written off (including dishonoured cheque)
Discounts received
Discounts allowed
Refunds of customer’s overpayment
216,100
2,880
150
260,090
1,260
2,520
5,860
370
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Advanced-Level
Debit balances on suppliers’ accounts at 31st December 1978 amount to $150, and credit
balances on customers’ accounts are $230.
Prepare Galway’s sales ledger control account and bought ledger control account for 1978:
carry down the closing balances.
Sales Ledger Control
1978
1/1
$ 1978
Balance b/d
Sales (251160 – 2540)
97550 1/1
248620
$
Balance b/d
Bank
48
260090
Interest charged
150
Bad Debts
1,260
Dishonoured cheques
250
Discounts Allowed
5,860
Refunds
370
Balance c/d
Balance c/d
230
347,170
79,912
347,170
Purchases Ledger Control
1978
1/1
$ 1978
Balance b/d
Bank
96 1/1
216100
Allowance received
2800
Discounts received
2520
Balance c/d
$
Balance b/d
Purchases
Balance c/d
56900
194720
150
30174
251,770
251,770
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Advanced-Level
Exercise Four
Retailer Multiples Ltd. maintains its credit customer accounts by machine methods. The
debtors ledger is divided into four sections (i) A to F; (ii) G to M; (iii) N to S; and (iv) T to Z; each
section being “billed” on a specified day of the calendar month. Section (iii) is billed on the 21st
of the month and the following details refer to transactions during the month ended 21st June 1981:
Debtor balances at 22nd May 1981
Creditor balances at 22nd May 1981
Allowances given against disputed debts
Credit Sales during the month
Irrecoverable balances transferred to Bad Debts account
* Balances referred to Debt Collectors
Cash and cheques received during the month
* “Service Charges” added to unpaid accounts
Credit Notes issued during the month in respect of sales goods returned by
customers
Dishonoured cheques
Cash refunds to customers
“Pre-List” total of debtor balances at 31st June (debit balances only)
Confirmed credit balances on customer accounts at 21st June 1981
$
1,320
57
120
10,583
66
92
8,975
104
493
50
20
2,445
28
During the month a customer named Minskip complained that he had been charged with a bill
for $21, which should have been debited to another customer called Nimsky. No adjustment had
been made in the sales ledger although the error had been accepted.
Another customer called Simonds, complained that his account had been debited in error with
$200 being the sale of a television set which he had agreed to buy under a hire purchase agreement
and not through his monthly accounts. He had also paid the deposit of $40, which had been
credited to his accounts.
Required:
(a) To write up the Control Account for Section (iii) of the Debtors ledger, making the necessary
adjustments for the errors given above and showing the amount to be transferred to the debit or
credit of Suspense Account pending internal audit of the Section.
(b) Comment on the circumstances under which the two items marked with an asterisk might
arise.
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Advanced-Level
Sales Leger Control (Section III)
$
Balance b/d
Sales
$
1320
Balance b/d
57
10,583
Allowances
120
Bad Debts
66
Service Charges
104
Dishonoured cheques
50
Sales Returns
493
Refunds
20
Cash & Cheques Received
8975
Suspense (b.f.)
Bal c/d
28
88
Bal c/d
2306
12,105
12,105
Workings:
List of debtors
$
Balance as per unadjusted balance
Add: Nimshky
2445
21
2466
Less: HP creditors
160
2306
Exercise Five
During the course of the audit of Webster & Co. it was found that the net total balances of
$16,460 extracted from the sales ledger on 30 June 19X1 did not agree with the net balance on the
sales ledger control account. On checking, the following errors were discovered, after the
adjustment of which the books balances and the corrected net total of sales ledger balances agreed
with the amended balance on the control account:
(1) Sales ledger balance had been omitted from the list of balances as follow:
.$
(2)
(3)
(4)
(5)
(6)
Debit
760
Credit
80
A credit balance of $80 in the sales ledger had been listed as a debit balance.
The sales day book had been undercast by $1,000
The list of balances had been overcast by $10.
Smith’s account had been credited with $280 for goods returned by him but no other entry had
been made in the books.
A transfer of $420 from Howard’s account in the purchase ledger to the credit of his account in
the sales ledger had not been entered in the control account.
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Advanced-Level
(7) A balance of $60 owing by Hector had been written off as irrecoverable on 30 June 19X1, and
debited to bad debts, but no entry had been made in the control account.
(8) A cheque for $260 received form Twist had been dishonoured but the entry recording this fact
in the cash book had not been posted to Twist’s account although dealt with in the control
account.
(9) The debit column of West’s account in the sales ledger had been overcast by $100.
You are required to prepare:
(a) A statement reconciling the original net balances extracted from the sales ledger with the
adjusted final balance on the sales ledger control accounts, and
(b) The sales ledger control account showing the necessary adjustments and the balance on
the account before these adjustments.
Statement reconciling the net balances from sales Ledger
$
$
Original net balance
Add:
16460
Debit Balance omitted
760
Dishonoured Cheque of Twist
260
1020
17480
Less:
Credit balance omitted
80
Credit balance wrongly posted (2* $80)
160
List of balance overcast
10
Debit balance overcast
100
Corrected net balances
350
17130
Sales Ledger Control
19-1
30/6
$ 19-1
Balance b/d
Sales
Balance c/d
16890
1000
160
$
Returns Inwards
280
Contra
420
Bad Debts
Balance c/d (17130 + 160)
17890
60
17290
17890
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Advanced-Level
Journal
Date
Particular
1
No entry
2
No entry
3
Sales Ledger Control
Dr.
1000
Sales
4
No entry
5
Sales Returns
1000
280
Sales Ledger Control
6
Purchases Ledger Control
280
420
Sales Ledger Control
7
Suspense
Sales Ledger Control
8
No entry
9
No entry
Cr.
420
60
60
Exercise Six
Kim maintains control accounts in the General Ledger in respect of both debtors and creditors.
The net total of balances extracted from the sales ledger as on 31st March, 1975 amounted to
$50,659 which did not agree with the balance on the Sales Ledger Control Account. On checking,
the following errors were discovered, after the adjustment of which the books balanced and the
correct net total of the Sales Ledger balances agreed with the amended Control Account balance:
(i) Sales return book had been undercast by $1,000.
(ii) $500 for goods sold to Jim had been correctly entered and debited to his account. The goods
were returned by Jim a faulty and the only record in Kim’s book was the crossing out of the
original entry in Jim’s account.
(iii) A credit balance of $60 in the Sales Ledger had been taken out as a debit balance.
(iv) A balance owing by Boon of $1,062 had been written off as irrecoverable on 31st March, 1975
and debited to bad debts account but no entry had been made in the Control Account.
(v) A bill receivable for $2,600, received form Hall Oake, had been dishonoured on maturity on
30th March, 1975. Kim had earlier discounted the bill with Chartered Bank Limited and
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Advanced-Level
received $2,450. The bank debited the account of Kim with $2,700(inclusive of charges) on
30th March, 1975. The entry recording this fact in the Cash Book had not been posted to Hall
Oake’s Account although dealt with in the Control Account.
(vi) Leng’s account showed a debit balance or $300. On 28th March, 1975 he paid $50 in cash
which was recorded in the Petty cash Book, no other entry being made.
Required:
(a) Give the Journal Entries where necessary, to correct these errors.
(b) Prepare a Statement showing the computation of the corrected sales ledger net balance.
(c) Prepare the Sales Ledger Control Account showing the balances before and after the
correction of errors.
Date
(i)
Particular
Sales Returns
Dr
1000
Sales Ledger Control
(ii)
Sales Returns
1000
500
Sales Ledger Control
(iii)
No Entry
(iv)
Suspense
500
1062
Sales Ledger Control
(v)
No Entry
(vi)
Suspense
Cr
1062
50
Sales Ledger Control
50
Statement for correction of sales ledger
$
Unadjusted balance
$
50659
Add: Unposted dishonoured bill
2700
53359
Less: Error of pick-up
Unrecoreded payment
120
50
170
53189
20
Advanced-Level
Sales Ledger Control
$
Balance b/d
55801
Balance c/d
60
$
Sales Returns (1000 + 50)
1500
Suspense (1062+50)
1112
Balance c/d (53189 + 60)
55801
53249
55801
Exercise Seven
National Industries Limited maintains subsidiary ledgers for debtors and creditors and control
accounts in the General Ledger. On October 31, 1976, Debtors and Creditors Control Accounts had
balances of $36,375 and $19,452 respectively. The following adjustments are to be made:
(1) Two outstanding debtors accounts (Lim $70, Rex$95) have been investigated. Lim’s account
represents the cash discount which was disallowed. It is decided to allow this claim and to
write-off Rex’s debt as irrecoverable.
(2) Peter has returned goods previously invoiced to him at $110. He complains that the quality is
(3)
(4)
(5)
(6)
inferior and it is decided to make an allowance in full.
Seng has purchased goods for $155. His account in the creditors ledger stands at $225. Contra
this purchase against the balance in the Creditors Ledger.
The account of Lee Soon had been charged $427 in error in respect of a sale for $472 to Lim
Soon.
Credit for purchase of goods from Lilly White, $250 has been posted to the wrong side in his
ledger account.
A note receivable for $1,000 drawn by a customer, Jim, in settlement of the balance in his
ledger account and accepted by National Industries Limited, was indorsed and delivered to a
supplier, Jack. Jack took it in full settlement of $950 due to him. The bill, which was
subsequently dishonoured on maturity, had to be met by National Industries Limited as
indorser and this has not yet been recorded in the books.
Required:
(a) Prepare the journal entries for the necessary adjustments in the Control Accounts and
Subsidiary Ledgers.
(b) Show how the Debtors and Creditors Control Accounts would appear after the adjustments
have been entered.
21
Advanced-Level
Date
(1)
Particular
Dr
Discounts allowed
70
Bad debts
95
Debtors Control Account
(2)
165
Returns inwards
110
Debtors Control Account
(3)
110
Creditors Control Account
155
Debtors Control Account
(4)
No Entry
(5)
No Entry
Cr
155
(Assume Sales Day book no error – Control no error)
(Only the subsidiary ledger incorrect)
(6)
Debtors Control Account
1000
Creditors Control Account (not yet paid)
1000
Debtors Control Account
$
Balance b/d
Bill receivable - dishonoured
36375
1000
$
Discounts allowed
70
Bad debts
95
Returns inwards
110
Contra
155
Balance c/d
37375
36945
37375
Creditors Control Account
$
Contra
Balance c/d
155
20297
20452
$
Balance b/d
Indorsed bill receivable- dishonoured
19452
1000
20452
22
Advanced-Level
Exercise Eight
The control accounts of Rainbow Ltd are an integral part of the double entry, and the
individual ledger balances are reconciled periodically with the control accounts. The Draft Trading
and Profit and Loss Account was prepared for the year to 30 June 1977 but the control accounts had
not been reconciled. The abridged trial balance at 30 June 1977 was as follows:
Dr.
Cr.
Sales ledger control account
26,200
Purchase ledger control account
33,154
Net profit per draft accounts
10,273
Other balances
253,272
236,045
279,472
279,472
The individual balances extracted from the sales ledger amounted to $26,473 (net) and from
the purchase ledger amounted to $32,779(net).
On checking the accounting records, the following errors were discovered:
1. The sales day book had been undercast by $100.
2. A transfer of $250 from Red’s account in the purchase ledger to the credit of his account
in the sales ledger had not been entered in either control account.
3. No entry had been made in the records for goods sold to Green on 30 June 1977 invoiced
to him at $275. Green collected the goods on 1 July 1977 and thus they had been
included in the stockholding on 30 June; the goods cost $230.
4. No entry had been made in the records for defective goods returned on 28 June to a
supplier Indigo Ltd which had been invoiced to Rainbow Ltd at $483. A credit note for
the full amount has been agreed.
5. A cheque of $723 received on 30 June from Orange, a customer, had been correctly
recorded in the cash book but no posting had been made to the sales ledger account of
Orange.
6. A debt owing by Yellow had been written off in the sales ledger as irrecoverable on 31
March 1977 but no entry had been made in the journal or the control account.
7. A discount received from the supplier Purple Ltd had been entered only in the supplier’s
personal account.
After the correction of the foregoing errors, the corrected net total of ledger balances agreed
with the amended balances on the control accounts.
You are required to:
1. Adjust the sales and purchase ledger control accounts and show the reconciliation of the
closing balances with the individual aggregate balances extracted from the purchase and
sales ledgers, and
2. Compute a revised net profit for the year.
23
Advanced-Level
Sales Ledger Control Account
$
Balance b/d
26200
$
Contra
250
300
Sales (sales day book undercast)
100
Bad debts
Sales (unrecorded)
275
Balance c/d
26025
26575
26575
Purchases Ledger Control Account
$
Contra
250
Returns Outwards
483
Discounts received
125
Balance c/d
$
Balance c/d
33154
32296
33154
33154
Statement of revised net profit
$
Net profit before adjustment
$
10273
Add: Sales (undercast)
100
Unrecorded sales
275
Returns Outwards (unrecorded)
483
Discounts Received (unrecorded)
125
983
11256
Less:
Overstated Ending Stock
230
Bad Debts
300
Revised Net Profit
530
10726
24
Advanced-Level
Exercise Nine
Nostla Products Limited includes in its accounting system a purchases ledger control account
and a sales ledger control account. The company’s trial balance at 30 November 19X9 included the
following entries:
Dr.
Cr.
Purchases ledger control account
1,242
24,647
Sales ledger control account
39,650
941
The following is a summary of the company’s transactions with its suppliers and customers
during the year ended 30 November 19X0:
$
Goods purchased and received form suppliers
Gross invoice value before trade discounts
Net invoice price after trade discounts
Goods returned to suppliers
Gross invoice value before trade discounts
Net invoice price after trade discounts
Amount due to suppliers
Total full amount
Settled by payment of
Goods sold to customers
Gross invoice value before trade discounts
210,786
176,410
Net invoice price after trade discounts
Goods returned from customers
Gross invoice value before trade discounts
Net invoice price after trade discounts
Amount due from customers
Full amount
Settled by receipt of
Customers debts written off as irrecoverable
310,690
16,476
15,113
163,300
159,400
344,700
7,600
6,764
307,610
306,540
970
It has been decided to create a provision for doubtful debts at 30 November 19X0 of 2½% of
the total amount due from customers indebted to the company; there was no provision for doubtful
debts in the trail balance at 30 November 19X9.
t 30 November 19X0 both the purchases ledger and the sales ledger included accounts with J.
Dyke:
$
Purchases ledger
1,630
Credit
Sales ledger
1,268
Debit
It has been decided to set off J. Dyke’s balance in the sales ledger against his balance in the
purchased ledger.
25
Advanced-Level
The purchases ledger at 30 November 19X0 included the following accounts with debit
balances:
$
G. Graham
930
L. Brooke
420
The sales ledger at 30 November 19X0 included the following accounts with credit balances:
$
P. Hilltop
230
H. Pumpkin
83
K. Bunson
500
Required:
(a) The following accounts for the year ended 30 November 19X0 in the books at Nostla
Products Limited:
Purchases ledger control account
Sales ledger control account
Note: The balances outstanding on 30 November 19X0 should be brought down.
(b) (i) The journal entry for the creation of the provision for doubtful debts at 30 November
19X0. Note: The journal narrative is required.
(ii) Explain the relationship between the provision for doubtful debts and the sales ledger
control account.
Purchases Ledger Control Account
$
Balance b/d
Returns Outwards
Bank
Discounts Received
1242
15113
159400
$
Balance b/d
Purchases
Balance c/d (930 + 420)
24647
176410
1350
3900
(163300-159400)
Contra
Balance c/d
1268
21484
202407
202407
26
Advanced-Level
Sales Ledger Control Account
$
Balance b/d
39650
Sales
310690
Balance c/d
813
$
Balance b/d
941
Returns inwards
6764
Bank
306540
Discount Allowed
1070
(307610 - 306540)
Contra
1268
Bad debts
970
Balance c/d
33600
351153
Date
Particular
Profit and Loss 33600x 2.5%)
Dr
Cr
840
Provision for bad debts
Debtors Dr. 33600
351153
840
Creditors Dr. 1350
Cr. 813
Cr. 21484
Balance Sheet (Extract)
Current Assets
Debtors (33600+1350)
Less: Provision for bad debts
34950
840
34110
Exercise Ten
During the course of the audit of Grey & Co. it was found that the net total balances of
$28,200 extracted from the sales ledger on 31 December 19X2 did not agree with the net balance on
the sales ledger control account on checking, the following errors were discovered, after the
adjustment of which the books balanced and the corrected net total of sales ledger balances agreed
with the amended balance on the control account:
(1) A debit balance of $860 and credit balances amounting to $140 had been omitted form the
list of balances.
(2) The sales returns book had been undercast by $1,000.
27
Advanced-Level
(3) The list of balances had been overcast by $100.
(4) A balance owing by Silver of $180 had been written off as irrecoverable on 31 December
19X2 and debited to bad debts, but no entry had been made in the control account.
(5) A debit balance of $140 in the sales ledger had been listed as a credit balance.
(6) No entries had been made in the control accounts in respect of a transfer of $410 standing
to the credit to Green’s account in the purchase ledger to his account in the sales ledger.
(7) Black’s accont had been credited with $340 for goods returned by him but no other entry
had been made in the books.
(8) A discount of $50 allowed and a corresponding amount entered in the discounts received in
the cash book and posted to Brown’s account in the purchase ledger and included in the
total of discounts received.
You are required to prepare:
(a) A statement reconciling the original net balances extracted from the sales ledger with the
adjusted final balance on the sales ledger control account, and
(b) The sales ledger control account showing the necessary adjustments and the balance on
the account before and after these adjustments.
Statement for correction of sales ledger
$
Balance extracted before adjustment
$
28200
Add: Debit balance omitted
860
Debit balance listed as credit ($140*2)
280
Brown’s discount disallowed
50
1190
27010
Less:
Credit balance omitted
140
List overcast
100
Balance after adjustment
240
29150
Sales Ledger Control Account
$
Balance before adjustment
Discounts allowed overstated
Balance c/d
31170
50
140
31360
$
Balance b/d
140
Sales Returns (unrecorded)
340
Sales Returns (undercast)
1000
Bad Debts
180
Contra – Green’s account
410
Balance c/d (29150+140)
29290
31360
28