FA – Nov 2019 – L2 – SB – Q4 – Control Accounts

The question requires differentiating between receivables and payables control accounts, highlighting the uses of control accounts, and preparing sales and purchases ledger control accounts using provided transaction data.

Question

a. The Chief Executive Officer (CEO) of Favourite Gift Shop buys and sells gift items to both individuals and organisations. The CEO has close personal relationships with her business partners and knows the amount owed to her suppliers.

In a recent meeting held between the CEO and the Auditor, the Auditor brought up the issue of the unavoidable need for the business to maintain the relevant control accounts. The CEO is seriously considering adhering to the auditor’s recommendation but needs further clarification on the issue.

Required:
i. Differentiate between receivables control account and payables control account. (2 Marks)

ii. Highlight FOUR uses of control accounts. (4 Marks)

b. The following information is extracted from the books of Favourite Gift Shop for October 1, 2019:

Transaction	Debit	Credit
Sales Ledger Balance	N7,200 (debit)	N45 (credit)
Bought Ledger Balance	N100 (debit)	N2,910 (credit)
Sales Day Book Total	N105,540
Purchases Day Book Total	N94,150
Returns Inwards	N4,710
Bank Draft Received	N13,500
Cheques Payment to Suppliers	N82,000
Cheques Returned	N3,750
Bad Debts Written Off	N3,200
Cash Sales	N180
Discount Allowed	N1,350
Discount Received	N2,835
Returns Outwards Day Book	X
Purchases Ledger Contra	N780
Petty Cash Paid to Suppliers	N100
Drafts Issued to Suppliers	N6,450
Debit Balance in Sales Ledger Transferred to Purchases Ledger	N780
Discount Withdrawn by Suppliers	N435
SMS Alerts for Cheques Received from Customers	N42,500
Discount Disallowed	N450
October 31, 2019 Sales Ledger Balance	N24,765 (debit)	N290 (credit)
October 31, 2019 Bought Ledger Balance	N114 (debit)	N4,260 (credit)

Required:
i. Prepare the sales ledger control account for the period. (7 Marks)
ii. Prepare the purchases ledger control account for the period. (7 Marks)

Answer

a.
i. Difference between Receivables Control Account and Payables Control Account:

Receivables Control Account: This is a summary account that consolidates the total amount owed by customers (debtors) to the business for credit sales. It reflects total credit sales, payments received, returns, and any write-offs of bad debts.
Payables Control Account: This is a summary account that consolidates the total amount owed by the business to its suppliers (creditors) for credit purchases. It records total purchases, payments made to suppliers, and any returns or adjustments.

ii. Uses of Control Accounts:

Verification of Ledger Balances: Control accounts are used to cross-check the accuracy of individual ledger balances by ensuring that the total balances of debtors or creditors match the control account totals.
Error Detection: They help in identifying errors such as omissions, duplications, or misposting of transactions in subsidiary ledgers.
Prevention of Fraud: Since control accounts are maintained separately from the subsidiary ledgers, they act as a check against fraudulent activities.
Preparation of Trial Balance: Control accounts make it easier and faster to prepare a trial balance by summarizing the overall position of receivables and payables.

i. Sales Ledger Control Account for the period ending October 31, 2019:

Debit	N’000	Credit	N’000
Balance b/f (01/10/2019)	7,200	Balance b/f (01/10/2019)	45
Sales Day Book	105,540	Bank Draft Received	13,500
Cheques Returned	3,750	Cheques Received	42,500
Purchases Ledger Contra	780	Discount Allowed	1,350
Discount Disallowed	450	Returns Inwards	4,710
		Bad Debts Written Off	3,200
		Debit Balances Transferred	780
		Balance c/d (31/10/2019)	24,765
		Balance c/d (31/10/2019)	290
Total	117,230	Total	117,230

ii. Purchases Ledger Control Account for the period ending October 31, 2019:

Debit	N’000	Credit	N’000
Balance b/f (01/10/2019)	100	Balance b/f (01/10/2019)	2,910
Returns Outwards Day Book	X	Purchases Day Book Total	94,150
Cash Paid to Suppliers	82,000	Discount Received	2,835
Petty Cash Paid to Suppliers	100	Draft Issued to Suppliers	6,450
Debit Balance Transferred	780	Discount Withdrawn by Suppliers	435
Balance c/d (31/10/2019)	114	Balance c/d (31/10/2019)	4,260
Total	97,609	Total	97,609

Tags: Payables Control Account, Purchases Ledger, Receivables Control Account, Sales Ledger, Uses of Control Accounts
Level: Level 1

Topic: Control Accounts
Series: NOV 2019

Uploader: Dotse