FA1 Chapter 5 Eng

7/29/2019 FA1 Chapter 5 Eng

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Chapter 5 Control Accounts

Notestoteachers

1 StartwithChapters3and4ofFrank Woods Introduction to Accountingandbrieflyexplaintostudentsthebasicprinciplesofrecordinginthebooksandledgerstransactionswithtradedebtorsandcreditors.

2 Remindstudentsthatcashsalesandpurchasesarenotrecordedintheaccountsreceivableandaccountspayableledgers.

3 Moststudentshavedifficultyrelatingthejournalstotheledgers.TeachersshouldgooverwithstudentsthebookkeepingproceduresshowninExhibit5.1.

4 Thepreparationofacontrolaccountfortheaccountsreceivableoraccountspayableledgerisnotadifficulttaskformoststudents.Butitisnotthateasytoworkoutthereconciliationofbalancesofa

controlaccountwithitscorrespondingledger.Teachersshouldspendsufficienttimeexplainingthe

errorsandtheircorrections,asshowninSections5.85.10.

5 Remindstudentsthatminoritybalancesshouldnotbenettedoffwiththenormalbalances.Thiserror

alwaysoccursinpublicexamquestions.

6 Thistopicisusuallycombinedwithothertopics,mostlikelythecorrectionoferrors,inpublic

examinations.

7 Someteacherspreferteachingthecorrectionoferrorsfirstbeforeteachingthecontrolaccounts.Thereis

noobjectiontosucharrangement.Thereasonforplacingthetopicofcontrolaccountsbeforethe

correctionoferrorsisthatthistopicinvolvesfewertypesoftransactions(onlytransactionswithtradedebtorsandtradecreditors),makingitaneasiertopictodealwith.

Q1 Tradedebtorsaccounts

Q2 Debtorsareindividualsororganisationswhichowethefirmmoney.Tradedebtorsaredebtorswhoarise

fromgoodsorservicessoldoncredit.Non-tradedebtorsaredebtorswhoariseforotherreasons.

Onlythetransactionswithtradedebtorsshouldbeshownintheaccountsreceivableledgercontrol

account.

Q3Ifthebaddebtwaswrittenoffinapreviousperiodbutwasrecoveredinthecurrentperiod,therequireddoubleentrieswouldbe:

1 Restatingthedebt(fortheamountpaidback)inthedebtorsaccount:

Dr Debtorsaccount Cr Baddebtsrecoveredaccount

o es o e

M01_FWFA_TB_HKG_9645_C05.indd 60 2009/11/4


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2 Recordingthereceiptofpayment:

Dr Cash/Bankaccount Cr Debtorsaccount

3 Transferringthetotalofbaddebtsrecoveredtotheprofitandlossaccountattheendofanaccountingperiod:

Dr Baddebtsrecoveredaccount

Cr Profitandlossaccount

Ifthebaddebtwaswrittenoffandrecoveredinthesameperiod,therequireddoubleentrieswouldbe:

1 Restatingthedebt(fortheamountpaidback)inthedebtorsaccount:

Dr Debtorsaccount

Cr Baddebtsaccount

2 Recordingthereceiptofpayment:

Dr Cash/Bankaccount Cr Debtorsaccount

Inthiscase,thereisnoneedtoopenaseparateaccountforbaddebtsrecovered.Whatisneededisto

reversethebaddebtfromthebaddebtsaccount.

Q4 1 Put(a)themonthlytotalsoftransactionsthatarerelatedtotradedebtorsfromthebooksoforiginalentry(suchasthesalesjournal,thereturnsinwardsjournalandthecashbook)and(b)thetrade

debtorsbalancesfromtheaccountsreceivableledgerintoacontrolaccount.

2 Checkwhetherthedebitandcredittotalsofthecontrolaccountagree.

Ifthedebitandcredittotalsofthecontrolaccountdonotagree,errorsmusthavebeenmade

somewhereinthebooksorledgers.

Q5 Tradecreditorsaccounts

Q6 Creditorsareindividualsororganisationstowhomthefirmowesmoney.Tradecreditorsarecreditors

whoarisefromgoodsorservicespurchasedoncredit.Non-tradecreditorsarecreditorswhoariseforotherreasons.

Onlythetransactionswithtradecreditorsshouldbeshownintheaccountspayableledgercontrol

account.

Q7 Minoritybalancesrefertocreditbalancesintheaccountsreceivableledgerordebitbalancesinthe

accountspayableledger.Suchbalancesonlyexisttemporarily.

Q8 Withaself-balancingcontrolaccount,theopeningorclosingbalanceinthecontrolaccountisnot

extractedfromthecorrespondingledger.Instead,itisthedifferencebetweenthetotalsofthetwosides

ofthecontrolaccountitself.

Q9 Theadvantagesforkeepingcontrolaccountsinclude:

Controlaccountshelptestthearithmeticalaccuracyofentriesinledgers. Theyhelpsafeguardagainstfraud. Theyfacilitatethepreparationoffinancialstatements.



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A1 Thegeneraljournal(orthejournal)

A2 (a)and(b):Theywillbothdecrease.

A3 Possiblereasons:

1 Thefirmreturnedgoodstoacreditoraftermakingfullpayment.

2 Thefirmhadover-paidacreditor.

Thetotalofminoritybalancesintheaccountspayableledgershouldbeshownseparatelyinthecontrol

account.Theyshouldnotbenettedoffwiththecreditbalancesintheaccountspayableledger.

A4 (a) $600

(b) Thecreditbalanceswouldbecome$55,000(i.e.,reducedby$600)andminoritybalanceswouldnot

beseparatelyshown.

A5 AlltheerrorsmentionedinSection5.7wouldnotoccurifpostingwasdoneautomaticallybycomputer.

A6 Thetotalofbalancesintheaccountsreceivableledgerwouldbecome$9,000,whilethebalanceofthe

accountsreceivableledgercontrolaccountwouldbeunaffected(i.e.,$8,000).Sothesetwobalances

wouldnotagree.

A7 TheerrorshowninExhibit5.16wouldnotoccurifpostingwasdoneautomaticallybycomputer.

A8 Thedebitbalancesintheaccountsreceivableledgerwouldhavebeenoverstatedby$428.Thedebittotal

shouldbereducedby$428andthecreditbalanceof$428shouldbeseparatelyshown.

A9 Theallowancefordoubtfuldebtsismadeattheendofanaccountingperiodandrecordedintheallowance

fordoubtfuldebtsaccountandtheprofitandlossaccount.Bothoftheaccountsarekeptinthegeneral

ledger.Noentriesaretobemadeintheaccountsreceivableledger.Therefore,theerrorinrespectoftheallowancefordoubtfuldebtswouldnotaffecttheaccountsreceivableledgeroritscontrolaccount.

A10 No.Thisisbecausetherearecertaintypesoferrorsthatdonotaffecttheagreementofacontrolaccountanditscorrespondingledger.RefertoSection5.8forexamples.

A11 Evenwhenthebalanceofacontrolaccountagreeswiththetotalofbalancesinitscorrespondingledger,itdoesnotnecessarilymeanalltheentriesinthecorrespondingbooksandledgersarecorrect.Thisis

becausetherearecertaintypesoferrorsthatdonotaffecttheagreementofacontrolaccountandits

correspondingledger.Therefore,controlaccountscannothelptodetectallaccountingerrors.



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ASSESSMENT

Short QuestionsShort Questions

1 AccountsReceivableLedgerControl

2009 $ 2009 $

Mar 1 Balanceb/d 12,490 Mar 31 Returnsinwards 1,120

" 31 Sales 24,610 " 31 Cashandbank 16,380 " 31 Balancec/d 19,600

37,100 37,100

2X AccountsPayableLedgerControl

2009 $ 2009 $

May 31 Returnsoutwards 1,220 May 1 Balanceb/d 19,320

" 31 Bank 22,390 " 31 Purchases 31,745" 31 Balancec/d 27,455

51,065 51,065


2009 $ 2009 $

Mar 1 Balanceb/d 6,708 Mar 31 Discountsallowed 300" 31 Sales 11,500 " 31 Cashandbank 8,970

" 31 Baddebts 115

" 31 Returnsinwards 210

" 31 Balancec/d(balancingfigure) 8,613 18,208 18,208

4X AccountsPayableLedgerControl

2009 $ 2009 $

Nov 30 Discountsreceived 240 Nov 1 Balanceb/d 7,560

" 30 Returnsoutwards 355 " 30 Purchases 11,100" 30 Cashandbank 9,850

" 30 Balancec/d(balancingfigure) 8,215

18,660 18,660


2009 $ 2009 $

May 1 Balanceb/d 6,420 May 31 Cashandbank 10,370" 31 Sales 12,800 " 31 Discountsallowed 395

" 31 Balancec/d 50 " 31 Set-offsAccountspayableledger 145

" 31 Balancec/d(balancingfigure) 8,360

19,270 19,270



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Application Problems

6X (a) AccountsPayableLedgerControl

2009 $ 2008 $

Mar 31 Discountsreceived 1,125 Apr 1 Balanceb/f 15,000

" 31 Paymentstocreditors 156,250 2009" 31 Set-offAccountsreceivableledger 2,500 Mar 31 Purchases 151,000

" 31 Balancec/f 6,125

166,000 166,000

(b) AccountsReceivableLedgerControl

2008 $ 2009 $

Apr 1 Balanceb/f 30,000 Mar 31 Receiptsfromdebtors 212,8752009 " 31 Set-offAccountspayableledger 2,500

Mar 31 Sales 236,250 " 31 Balancec/f 51,100

" 31 Interestchargedtodebtors 225

266,475 266,475

7X (a) Theadvantagesforkeepingcontrolaccountsinclude:

Itkeepsacheckonthearithmeticalaccuracyofentriesintheaccountsreceivableandaccountspayableledgers.See(c)below.

Itenablesaquickcheck,formanagementcontrol,onthetotalsoftradedebtorsandtradecreditorswithoutwaitingforalltheaccountstobebalancedoff.

(b) Hecansetoffthebalancesbetweentheparticulartradedebtorsaccountintheaccountsreceivableledgerandthetradecreditorsaccountofthatpersonintheaccountspayableledger.Onlythenet

indebtednesswillhavetobepaidorreceived.

(c) No,hecant.Errorsmaystilloccurwhenthereare:

(i) Completeomissionsofsales,purchases,returnsinwardsoroutwardsfromthebooks.

(ii) Completeomissionsfromthebooksofcash/chequesreceivedorcash/chequespaidout.

(iii)Errorsofcommission,e.g.,salestoKWongdebitedtoKWoo.

(iv)Compensatingerrors.

(v) Errorsoforiginalentry,e.g.,salesof$95enteredasbothdebitandcredititemsas$59.

(vi)Otheritems,suchasdebtswrittenoffasbaddebtsinerror.

(Note:ThesetypesoferrorswillbecoveredinChapter6.)

8 (a) AccountsPayableLedgerControl

2010 $ 2010 $

Mar 31 Purchases(iii) 120 Mar 31 Balanceb/f 5,850

" 31 Balancec/f 5,960 " 31 Purchases(i) 230 6,080 6,080



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(b) StatementofAccountsPayableLedgerBalancesasat31March2010(beforecorrections)

$ $

Originalbalances(balancingfigure) 4,950Add Purchaseswronglydebitedtocreditorsaccount($8702) (ii) 1,740

6,690Less Purchasesoverstated (iii) 120

Totalofbalancesovercast (iv) 610 (730)Correctedbalancesaspercontrolaccount 5,960

Note:Item(v)didnotaffecttheaccountspayableledgeranditscontrolaccount.

9X (a) AccountsReceivableLedgerControl

2010 $ 2010 $

Dec 31 Balanceb/f 4,560 Dec 31 Salesovercast(i) 640

" 31 Salesundercast(ii) 50 " 31 Balancec/f 3,970

4,610 4,610

(b) StatementofCorrectedAccountsReceivableLedgerBalancesasat31December2010

$ $

Originalbalances 3,770Add Salesundercast (ii) 50

Balanceomitted (iv) 330 380

4,150Less Returnsinwardsunderstated($200$20) (iii) (180)

Correctedtotalofbalances 3,970

Note:Item(v)affectedneithertheaccountsreceivableledgernortheaccountsreceivableledger

controlaccount.

10 AccountsPayableLedgerControl

$ $

Returnsoutwards 2,648 Balanceb/f 11,874Bank 146,100 Purchases 154,562

Pettycash 78Discountsreceived 2,134

Set-offsAccountsreceivableledger 1,036

Balancec/f 14,530

166,526* 166,436*

*Error:Differencebetweentwosides$90onthecreditside($166,526$166,436)

AccountsReceivableLedgerControl

$ $

Balanceb/f 19,744 Returnsinwards 4,556Sales 199,662 Cashandbank 185,960

Discountsallowed 5,830

Set-offsAccountspayableledger 1,036 Balancec/f 22,024 219,406 219,406



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11 (A) Theadvantagesofmaintainingcontrolaccountsinclude:

Withacontrolaccountforeachledger,itiseasiertolocateerrors. Withcontrolaccountsfortheaccountsreceivableledgerandtheaccountspayableledger,itis

fastertoderivethetotalsofdebtorsbalancesandcreditorsbalances.

Withledgersandcontrolaccountsbeingseparatelypreparedbydifferentpersons,itismoredifficulttocommitfraudinthebooks.

(Anytwooftheaboveorotheracceptableanswers)

(B)(a) StatementofRevisedTotalofAccountsReceivableLedgerBalancesasat31December2009

$ $

Originaltotalofbalances 38,253Add Debittotalofadebtorsaccountundercast (iv) 200 Debitbalanceincludedasacreditbalance($4662) (vii) 932 1,132

39,385Less Salesunderstatedandenteredtwice[($6282)$682)] (i) 574

Chequereceivedwronglydebitedtodebtorsaccount($3,697+$3,679) (ii) 7,376 (7,950)Revisedtotalofbalances 31,435

(b) AccountsReceivableLedgerControl2009 $ 2009 $

Dec 31 Balanceb/f(balancingfigure) 30,902* Dec 31 Returnsinwards(iii) 121" 31 Sales(i) 54 " 31 Balancec/f(from(B)(a)) 31,435

" 31 Discountsallowed(v) 600 31,556 31,556

*Thebalancesbeforeadjustmentsintheaccountsreceivableledgercontrolaccountamountedto$30,902.

Note: Item(vi)shouldbecorrectedasfollows:

Dr Bankaccount$1,280 Cr Baddebtsrecoveredaccount(orprofitandlossaccount)$1,280

Therefore,thisitemwouldnotaffecttheaccountsreceivableledgerortheaccountsreceivable

ledgercontrolaccount.

12X (a) AccountsReceivableLedgerControl

$ $

Balanceb/f 46,540 Balanceb/f 470

Sales($7,650$7,560)(ii) 90 Sales(iii) 1,800

Balancec/f 470 Baddebts(v) 680 Set-offAccountspayableledger(vi) 3,600

Balancec/f 40,550

47,100 47,100

AccountsPayableLedgerControl

$ $

Balanceb/f 230 Balanceb/f 38,220Purchasesovercast(i) 290 Purchases(iii) 1,800

Set-offAccountsreceivableledger(vi) 3,600 Balancec/f 230

Balanceovercast(vii) 90

Balancec/f 36,040 40,250 40,250



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(b) StatementofAccountsReceivableLedgerBalancesasat31March2009(beforecorrections)

$ $

Adjustedtotalofdebitbalances 40,550Add Purchaseswronglyrecordedassales (iii) 1,800

Set-offwithaccountspayableledger (vi) 3,600 Creditbalancewronglylistedasadebitbalance (viii) 470 5,870

46,420Less Salesunderstated (ii) (90)

Totalofdebitbalancesbeforecorrections 46,330

Totalofcreditbalancesbeforecorrections 0

StatementofAccountsPayableLedgerBalancesasat31March2009(beforecorrections)

$ $

Adjustedtotalofcreditbalances 36,040Add Set-offwithaccountsreceivableledger (vi) 3,600 39,640Less Purchaseswronglyrecordedassales (iii) 1,800

Purchaseswronglydebited($8502) (iv) 1,700 (3,500)

Totalofcreditbalancesbeforecorrections 36,140

Totalofdebitbalancesbeforecorrections 230

(c) Theseareknownasminoritybalances.Thecreditbalancesintheaccountsreceivableledgercontrol

accountrepresenttheamountsowedtocustomers,whilethedebitbalancesintheaccountspayable

ledgercontrolaccountrepresenttheamountsowedbysuppliers.Thesebalancesarisebecausegoods

havebeenreturnedafterfullsettlementoftheamountsowedand/oroverpaymentshavebeenmade.

Past Exam QuestionsPast Exam Questions

13 (a) CalculationoftheRevisedTotaloftheSalesLedgerBalances

$ $

Totalofsalesledgerbalancesbeforeadjustments 457,265Add Dishonouredcheque (iv) 6,760 464,025Less Baddebtswrittenoff (vii) 8,600

Debitbalanceincludedtwice (viii) 2,050 (10,650)

Revisedtotalofthesalesledgerbalances 453,375

CalculationoftheRevisedTotalofthePurchasesLedgerBalances

$ $Totalofpurchasesledgerbalancesbeforeadjustments 120,356Add Purchaseinvoicenotposted (vi) 3,040

Creditbalanceomitted (ix) 3,770 6,810

Revisedtotalofthepurchasesledgerbalances 127,166

(b) SalesLedgerControl

$ $

Balancebeforeadjustments 467,525 Salesdaybookovercast(i) 5,550

Baddebtswrittenoff(vii) 8,600

Balanceafteradjustments 453,375 467,525 467,525



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PurchasesLedgerControl

$ $Purchasesdaybookovercast(ii) 6,820 Balancebeforeadjustments 132,546

Discountreceivedomitted(iii) 1,450 Returnsoutwardsovercast(v) 2,890

Balanceafteradjustments 127,166

135,436 135,436

14X (a)(i) PurchasesLedgerControlAccount

2005 $ 2005 $Jun 1 Balanceb/d 320 Jun 1 Balanceb/d 7,645

" 30 Cash 37,659 " 30 Creditpurchases 41,847

" 30 Discountsreceived 785 " 30 Balancec/d 246

" 30 Returnsoutwards 972" 30 Salesledger:Set-off 648

" 30 Balancec/d 9,354

49,738 49,738

(ii) SalesLedgerControlAccount

2005 $ 2005 $Jun 1 Balanceb/d 14,160 Jun 1 Balanceb/d 282

" 30 Creditsales 65,264 " 30 Cash 61,457

" 30 Legalexpenseschargedto " 30 Discountsallowed 1,625

customersaccounts 250 " 30 Baddebtsexpense 600" 30 Dishonouredcheques 1,000 " 30 Returnsinwards 1,236

" 30 Balancec/d 135 " 30 Purchasesledger:Set-off 648

" 30 Balancec/d 14,961

80,809 80,809

(b) BalanceSheet(extract)asat30June2005

$Current assets

Tradedebtors($246+$14,961) 15,207

Less Provisionforbaddebts (338)Current liabilities

Tradecreditors($9,354+$135) 9,489

(c) (i) Tosummarisethetransactionsofsubsidiaryledgeraccountsandtoprovideadebtorsbalanceandcreditorsbalancefortheproductionofatrialbalanceandbalancesheet.

(ii) Toprovideaninternalcheckontheaccuracyofentriesbycomparingthetotalbalancesinthe

controlaccountswiththetotalofindividualaccountbalancesinthesubsidiaryledgers.Thiswill

helptolocateerrorsmorequickly.

(iii)Whenthereisaseparationofbookkeepingduties,thecontrolaccountsprovideanindependent

check.

(Anytwopoints)

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