FA – Nov 2021 – L1 – Q3 – Control accounts and account reconciliations

Preparation of Receivables and Payables Control Accounts, including adjustments for dishonored cheques, discounts, and contra entries.

Question

The following information relates to the receivables and payables of Daakye, a sole trader, for the year ended 31 December 2020.

Extract from the books as at 1 January 2020 is stated below:

Account	Amount (GHȼ)
Receivables’ ledger debit balances	400,000 Dr
Receivables’ ledger credit balances	40,000 Cr
Payables’ ledger credit balances	360,000 Cr
Payables’ ledger debit balances	160,000 Dr

Transactions for the year ended 31 December 2020:

Transaction	Amount (GHȼ)
Sales on credit	2,800,000
Sales returns (all credit)	160,000
Purchases on credit	1,800,000
Purchases returns (all on credit)	80,000
Amounts received from customers	2,400,000
Discount allowed to customers	40,000
Discount received from suppliers	60,000
Bad debt written off	120,000
Interest charged by a supplier for late payment of accounts	12,000
Discount received but subsequently disallowed	6,000
Payments to suppliers	1,500,000
Dishonored cheque received from a customer (included in the amounts received from customers above)	25,000
Contra entry between receivable and payable balances	9,780

Additional Information:

A customer’s balance of GHȼ6,990 was omitted from the debit balances list as of 1 January 2020.
As at 31 December 2020, the total of the credit balances in the receivable ledger was GHȼ60,000.
The total of the debit balances in the payable ledger as at 31 December 2020 was GHȼ24,000.

Required:
a) Prepare the Receivable and Payable Control Accounts for Daakye for the year ended 31 December 2020.
(18 marks)

b) Explain TWO (2) reasons for preparing control accounts.
(2 marks)

Answer

b)
Reasons for Preparing Control Accounts:

Verification of Ledger Accuracy:
Control accounts help ensure the accuracy of individual ledger balances by providing a summary that can be compared with the totals in the detailed ledgers, thus helping to detect and correct errors.
Simplified Reconciliation:
Control accounts facilitate the reconciliation of accounts by summarizing all entries, making it easier to identify discrepancies between the general ledger and subsidiary ledgers, especially in large organizations.

(2 points @ 1 mark each = 2 marks)