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Debtors Control Account The debtors' ledger control account of W - Leaving Cert Accounting - Question 2 - 2016
Question 2
Debtors Control Account The debtors' ledger control account of W. McGuinness showed the following balances: €27,000 and €650 for 31/12/2015. These figures did not a... show full transcript
Worked Solution & Example Answer:Debtors Control Account The debtors' ledger control account of W - Leaving Cert Accounting - Question 2 - 2016
Step 1
Prepare the adjusted debtors’ ledger control account
Answer
To adjust the Debtors Control Account, we need to account for the errors identified:
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Starting Balances:
- Balance b/d = €27,000
- Balance c/d = €650
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Adjustments:
- Discount allowed: Treat €120 as adjustment, with the entry originally misclassified. Therefore, it adds back to the control account.
- Interest adjustment: Start with €95, adjust this to reflect €65, so subtract €30.
- Sales correction: Original entry was €1,720; needs to reflect €1,240, so subtract €480.
- Contra entry: Initially noted incorrectly as €140; this should not affect totals since it balances with the customer's account.
- Bills receivable was incorrectly recorded as outstanding debt; should adjust this by subtracting €560.
- Returns: Record total returns correctly along with reducing the initial amount on the credit side.
The adjustments yield:
- Updated credit balance = €27,000 + €120 - €30 - €480 - €560 = €26,050.
- Adjusted total is adjusted to €27,671.
Step 2
Prepare the adjusted schedule of debtors showing the original balance
Answer
The original balance of the debtor accounts should include:
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Balance as per list of debtors: €25,396
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Add Sales - cash and credit: Added sales total from previous adjustments, calculate the total to €27,596 after including all transactions.
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Deductions and Adjustments:
- Discount allowed: €120 deducted
- Interest: €30 deducted
- Contra: €140 (recorded in error)
- Bills receivable: €560 deducted
- Sales returns: Adjusted total as necessary to reflect effective returns.
Final balance would yield: €25,761 after making all deductions.
Step 3
Give two reasons for preparing debtors’ control accounts
Answer
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Accuracy Check: Debtors control accounts act as a verification tool for the accuracy of the ledgers by comparing the balance of the control account with the total of debtors per the schedule.
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Error Detection: These accounts help identify discrepancies quickly and facilitate easier tracing for errors in the general ledgers, providing assurance over financial reporting.
Step 4
Explain one limitation of using control accounts
Answer
Control accounts may lead to incomplete data as they do not identify which individual ledger accounts may be incorrect. This limitation makes it difficult to identify specific errors, such as omissions or inconsistencies across various customer accounts, without further investigation.