- 20 Marks
Question
The following information relates to the receivables and payables of Daakye, a sole trader, for the year ended 31 December 2020.
Extract from the books as at 1 January 2020 is stated below:
Account | Amount (GHȼ) |
---|---|
Receivables’ ledger debit balances | 400,000 Dr |
Receivables’ ledger credit balances | 40,000 Cr |
Payables’ ledger credit balances | 360,000 Cr |
Payables’ ledger debit balances | 160,000 Dr |
Transactions for the year ended 31 December 2020:
Transaction | Amount (GHȼ) |
---|---|
Sales on credit | 2,800,000 |
Sales returns (all credit) | 160,000 |
Purchases on credit | 1,800,000 |
Purchases returns (all on credit) | 80,000 |
Amounts received from customers | 2,400,000 |
Discount allowed to customers | 40,000 |
Discount received from suppliers | 60,000 |
Bad debt written off | 120,000 |
Interest charged by a supplier for late payment of accounts | 12,000 |
Discount received but subsequently disallowed | 6,000 |
Payments to suppliers | 1,500,000 |
Dishonored cheque received from a customer (included in the amounts received from customers above) | 25,000 |
Contra entry between receivable and payable balances | 9,780 |
Additional Information:
- A customer’s balance of GHȼ6,990 was omitted from the debit balances list as of 1 January 2020.
- As at 31 December 2020, the total of the credit balances in the receivable ledger was GHȼ60,000.
- The total of the debit balances in the payable ledger as at 31 December 2020 was GHȼ24,000.
Required:
a) Prepare the Receivable and Payable Control Accounts for Daakye for the year ended 31 December 2020.
(18 marks)
b) Explain TWO (2) reasons for preparing control accounts.
(2 marks)
Answer
b)
Reasons for Preparing Control Accounts:
- Verification of Ledger Accuracy:
Control accounts help ensure the accuracy of individual ledger balances by providing a summary that can be compared with the totals in the detailed ledgers, thus helping to detect and correct errors. - Simplified Reconciliation:
Control accounts facilitate the reconciliation of accounts by summarizing all entries, making it easier to identify discrepancies between the general ledger and subsidiary ledgers, especially in large organizations.
(2 points @ 1 mark each = 2 marks)
- Topic: Control accounts and account reconciliations
- Series: NOV 2021
- Uploader: Theophilus