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Creditor's Control Account The creditors' ledger control account of C - Leaving Cert Accounting - Question 2 - 2019
Question 2
Creditor's Control Account The creditors' ledger control account of C. Keogh showed the following balances: €65,432 cr and €524 dr 31/12/2018. These figures did not... show full transcript
Worked Solution & Example Answer:Creditor's Control Account The creditors' ledger control account of C - Leaving Cert Accounting - Question 2 - 2019
Step 1
Prepare the adjusted creditors' control account.
Answer
To prepare the adjusted creditors' control account, we'll start with the initial balance of €524 on the debit side and then adjust according to the discrepancies found:
Adjusted Creditors Control a/c
Balance b/d €524
Credit note (v) €195
Add:
Cash/Credit Purchases (i) €1,480
Interest (iii) €119
Purchases (iv) €2,320
Total credits: €4,114
Less:
Restocking charge (ii) €550
Credit note (v) €354
Contra (vi) €545
Ending balance b/d: €65,641
Balance c/d: €524
Step 2
Prepare the adjusted schedule of creditors showing the original balance.
Answer
To prepare the adjusted schedule of creditors account balances, we begin with the balance as per the list of creditors and make the necessary adjustments:
Adjusted Schedule of Creditors Account Balances
Balance as per list of creditors: €66,233
Add:
- Cash/Credit purchases (i): €1,480
- Interest (iii): €119
- Purchases (iv): €2,320
Total: €70,152
Less:
- Restocking charge (ii): €4,400
- Credit note (v): €354
- Contra: €545
Net balance as per adjusted control account: €64,853
Step 3
Explain the purpose of a creditors' control account.
Answer
The creditors' control account serves to summarize all individual creditor transactions in the general ledger, allowing for easy verification and accuracy checks. It acts as a central account that helps businesses track total amounts owed to suppliers, reconciles individual supplier balances with the general ledger, and simplifies the audit process by providing a consolidated view of outstanding obligations.
Step 4
Explain how a contra entry may arise.
Answer
A contra entry may occur when two entities are both debtors and creditors to each other, allowing payments or debts to be offset. For example, if a customer owes a business money while the business owes the same customer an amount, these balances may be set against each other. This process simplifies transactions and minimizes cash flow requirements, as the amounts owed can cancel each other out instead of requiring separate payments.