FA – L1 – Q53 – Control accounts and account reconciliations

Prepare a revised sales ledger control account for Biomed Supplies Ltd for 20X8, correcting identified errors.

Question

The sales ledger control account of BioHealth Solutions Ltd for the year ended 31st December 20X8 has been prepared from the following information:

	GH¢
Debit balance b/d 1st January 20X8	128,540
Credit balance b/d 1st January 20X8	2,800
Total for the year 1st January 20X8 to 31st December 20X8
Credit Sales	1,144,200
Cheques received from customers	1,046,200
Cash received from customers	7,100
Sales returns from customers	12,000
Discounts allowed	2,480
Dishonoured cheques	5,000
Contras purchases ledger	10,640
Irrecoverable debts	6,500

The sales ledger control account balance, which is part of the double entry system, failed to agree with the total receivables of GH¢189,380 as shown by the schedule of receivables. The following errors were subsequently discovered:

(i) A customer had returned goods to BioHealth Solutions Ltd at the selling price of GH¢2,400. The goods had been bought on credit. No entries had been made to record the return of the goods in the accounts of BioHealth Solutions Ltd.
(ii) The discounts allowed column in the cash book had been overcast by GH¢1,080.
(iii) No contra entry had been made in the receivables account in the sales ledger in respect of purchases by BioHealth Solutions Ltd of goods at a list price of GH¢2,000. PC Ltd received a trade discount of 10% on these goods. This transaction had been correctly dealt with in the Sales Ledger Control Account.
(iv) A credit sale of GH¢3,520 to JT Private Health Ltd was correctly recorded in the sales ledger control account, but no other entry had been made.
(v) A cheque received from a customer for GH¢6,900, correctly processed through the books, had subsequently been dishonoured. No entries have yet been made to record this dishonoured cheque.
(vi) DT Medical Ltd, a customer, has recently been declared bankrupt and the debt of GH¢3,500 is to be written off, but no entries have yet been made.

Required:
(a) Prepare a revised sales ledger control account for the year ended 31 December 20X8.

(b) Prepare a statement showing the correct total of the Schedule of Receivables for the year ended 31 December, 20X8.

Answer

(A) Sales ledger control account

	GH¢		GH¢
Balance b/d	128,540	Cheques received	1,046,200
Credit sales	1,144,200	Cash received	7,100
Bank (dishonoured) (5,000 + 6,900)	11,900	Sales returns (12,000 + 2,400)	14,400
		Discounts allowed (2,480 + 1,080)	3,560
		Contras purchases ledger (10,640 + 1,800)	12,440
		Irrecoverable debts (6,500 + 3,500)	10,000
		Balance c/d	190,940
	1,284,640		1,284,640

(B)

Statement showing the correct total of the Schedule of Receivables

	GH¢
Balance as per schedule of receivables	189,380
Add: Contra entry omitted (2,000 × 90%)	1,800
Credit sale omitted	3,520
Dishonoured cheque	6,900
Less: Sales returns omitted	2,400
Irrecoverable debts	3,500
Correct total of schedule of receivables	195,700

(C)

Control accounts identify the ledger in which the errors have been made, and therefore make it easier for detection and correction of the errors.
Control accounts provide an independent check on the entries in the sales ledger and purchases ledger. The balance on the sales ledger control account must equal the total of the balances from the customers’ account in the sales ledger, and the balance on the purchases ledger control account should equal the total on the balances from the supplier’s accounts in the purchases ledger.

Tags: Advantages, Control Accounts, Errors, Financial accounting, Fraud Prevention, Payables, Receivables
Level: Level 1

Topic: Control accounts and account reconciliations

Uploader: Samuel Duah