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Debtors Control Account The Debtors Ledger Control Account of S - Leaving Cert Accounting - Question 2 - 2011
Question 2
Debtors Control Account The Debtors Ledger Control Account of S. O’Leary showed the following balances: €32,500 dr and €600 cr on 31/12/2010. These figures did not a... show full transcript
Worked Solution & Example Answer:Debtors Control Account The Debtors Ledger Control Account of S - Leaving Cert Accounting - Question 2 - 2011
Step 1
Prepare the Adjusted Debtors Ledger Control Account.
Answer
To prepare the Adjusted Debtors Ledger Control Account, we start with the original balance and make the necessary adjustments:
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Balance b/d
Start with the original balance:- Debtors Control Account: €32,500
- Credit side: €600
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Adjust for Discounts
Add the disallowed discount of €60 (recorded incorrectly):- €32,500 + €60 = €32,560
- Credit side: remains €600
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Adjust for Interest
Adjust the interest amount of €140:- Original entry was €40, with a €20 reduction:
- New balance = €60 added to the debtors account
- Total = €32,560 + €60 = €32,620
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Cash and Credit Sales Adjustment
Add cash sales of €1,200 and credit sales of €710:- New balance = €32,620 + €1,200 + €710 = €34,530
- Credit side remains €600
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Adjust for Missing Credit Note
Missing credit note of €45 results in negative adjustment of €45 in the balance:- New balance = €34,530 - €45 = €34,485
- Credit side remains €600
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Adjust for Incorrect Invoice Entry
Adjusting the invoice entry from €1,540 to €1,450 (negative adjustment of €90):- New balance = €34,485 - €90 = €34,395
- Credit side remains €600
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Adjustment for Debt Recovery
Add the recovery of €140 from the previously written-off debt:- Final balance = €34,395 + €140 = €34,535
- Credit side remains €600
Final Adjusted Debtors Ledger Control Account:
Balance b/d
- €34,535 (Dr)
- €600 (Cr)
Balance c/d: €34,535 (Dr) and €600 (Cr).
Step 2
Prepare the Adjusted Schedule (List) of Debtors showing the original balance.
Answer
To prepare the Adjusted Schedule of Debtors, the following steps must be followed:
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Starting Balance as per list of Debtors:
- Original balance: €27,639
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Add Adjustments:
- Discount disallowed: +€76
- Interest on account: +€160
- Debtors cash and credit sales error: +€2,260
- Invoice correction: +€1,450
- Bad debt recoverable: +€60
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Total Added:
- Total = €27,639 + €76 + €160 + €2,260 + €1,450 + €60 = €31,645
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Deduct Sales Returns:
- Sales returns of €65 must be deducted:
- Adjusted Total = €31,645 - €65 = €31,580
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Net Balance:
- The net balance as per adjusted Control Account = €31,590.
Step 3
Explain the importance of Control Accounts.
Answer
Control accounts are vital for the following reasons:
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Accuracy and Error Detection:
Control accounts serve as a point of reconciliation. They help in verifying the accuracy of individual accounts by summarizing the total of customer accounts, making it easier to identify discrepancies or errors in the ledgers. -
Financial Reporting:
They provide a clear picture of the financial transactions for management and external stakeholders, ensuring that businesses have accurate records for reporting purposes. -
Fraud Prevention:
Regular reconciliation of control accounts helps to detect fraudulent activities. Discrepancies may indicate unauthorized transactions or manipulation of records. -
Efficiency in Accounting:
Control accounts streamline the accounting process by summarizing a large number of individual transactions into a single entry, saving time and reducing complexities in accounting tasks. -
Facilitates Management Decisions:
They assist management in making informed decisions regarding credit and collections by providing summarized data that reflects the status of customer accounts.