FA – L1 – Q61 – Control accounts and account reconciliations

Reconcile accounts receivable ledger control account with ledger balances for Nelson Ltd. Clear suspense account for Nelson Ltd by posting corrections for trial balance errors.

Question

The trial balance of Nelson Ltd includes the following items:

	GH₵
Accounts receivable ledger control account	115,440
Accounts payable ledger control account	80,901
Suspense account (debit balance)	3,310

The following information is available:
(1) The total of debit balances in the accounts receivable ledger is GH₵116,374 and the total of credit balances is GH₵1,234.
(3) The accounts receivable ledger includes a debit balance of GH₵700 for Entity D, and the accounts payable ledger includes a credit balance of GH₵800 relating to Entity D. Only the net amount will eventually be paid.
(4) Included in the credit balances in the accounts receivable ledger is a balance of GH₵600 in the name of P. Smith. This arose because a sales invoice for GH₵600 had earlier been posted in error from the sales day book to the debit of the account of M. Smith in the accounts payable ledger.
(5) An allowance of GH₵300 granted to a customer for some damaged goods had been omitted from the appropriate account in the accounts receivable ledger. This allowance had been included in the accounts receivable control account.
(7) A cash receipt from a credit customer for GH₵345 had been entered in the cash book as GH₵245.

Required:
(a) Prepare a reconciliation of the accounts receivable ledger control account and the accounts receivable ledger balances.

(b) Open a suspense account and post the entries required to clear this account.

Answer

Financial accounting

(a) Accounts receivable ledger control account

	GH₵		GH₵
Balance b/d	115,440	Accounts payable ledger control: contra for D – item (3)	700
		Correction of cash receipt: increase by (345 – 245) – item (7)	100
		Corrected balance c/d	114,640
	115,440		115,440
Corrected balance b/d	114,640

Reconciliation of accounts receivable ledger control account with the total of balances in the accounts receivable ledger

Item		GH₵
1	Accounts receivable ledger debit balances	116,374
1	Accounts receivable ledger credit balances	(1,234)
		115,140
3	Contra: credit the account of D with the amount of the contra	(700)
4	Correction of sales invoice posting: debit the account of P. Smith and credit the account of M. Smith	600
5	Allowance for damaged goods: credit the customer’s account	(300)
7	Correction of cash receipt: credit the customer’s account by (345 – 245)	(100)
Adjusted total balances in the accounts receivable ledger		114,640
This equals:
Adjusted balance, accounts receivable control account		114,640

(b) Suspense account

	GH₵		GH₵
Balance b/d	3,310	Correction of bank balance error: (1,700 + 1,700) – item (9)	3,400
Correction of insurance account: (3,546 – 3,456) – item (10)	90
	3,400		3,400

(c) Accounts payable ledger control account

	GH₵		GH₵
Accounts receivable ledger control: contra for D – item (3)	700	Balance b/d	80,901
Correction of invoice: reduce balance by (654 – 456) – item (6)	198
Correction of over-addition of purchases: reduce balance – item (8)	1,000
Corrected balance c/d	79,003
	80,901		80,901
		Corrected balance b/d	79,003

Reconciliation of accounts payable ledger control account with the total of balances in the accounts payable ledger

Item		GH₵
2	Accounts payable ledger credit balances	80,412
2	Accounts payable ledger debit balances	(1,111)
		79,301
3	Contra: debit the account of D with the amount of the contra	(700)
4	Correction of sales invoice posting: credit the account of M. Smith	600
6	Correction of day book error: reduce supplier’s balance by (654 – 456)	(198)
Adjusted total balances in the accounts payable ledger		79,003
This equals:
Adjusted balance, accounts payable control account		79,003

Tags: Contra entries, Control Accounts, Ledger errors, Receivables ledger, Reconciliation
Level: Level 1

Topic: Control accounts and account reconciliations

Uploader: Samuel Duah