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Control Accounts (b)
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why the word CONTROL in the name control accounts
Because the balance on the control account should be the same as the total of the balances in the receivables or payables ledger.
The control account controls (or checks) the ledger.
Mr.Muffat, can you please explain test question number 4?:)
@johnmoffat, Thanks for that. So in the case of overpayment, receivables has been credited by too much, and so needs to be pruned to the correct level. That does make sense. Thank you…
have you any lecture videos on control account Reconciliation
Q4 The total of the list of balances in Adele’s payables ledger was $438900 at 30 June 2008. This balance did not agree with Adele’s payables ledger control account balance. The following errors were discovered:
(1) A contra entry of $980 was recorded in the payable ledger control account , but not in the payable ledger
(2) The total of the purchase returns journal was undercast by $1000
(3) An invoice for $4344 was posted to the supplier’s account as $4434
What amount should Adele report in its statement of financial position as accounts payable at 30 June 2008?
Why the answer is D , not A.
D is 438900-980-90=437830. But why (2) didn’t be deducted.
438900-980-1000?
@pagermm, the undercast will affect the balance in the receivables account in the nominal ledger. but for the receivables ledger you have accounts for each debtor so the undercast will not affect the list of balances from the receivables ledger. i hope am not late. i was also confused and this is the time it clicked.
@pankajharish, thank you very much, it is not late. My exam is cbe.
@pankajharish, Hello, I’m not sure I agree, for Purchase returns we credit purchase returns and we debit payables, I’m still not convinced why the answer is not A
agree with @nzeadall. Purchase returns is what we buy on credit (payables and purchases accounts) and return. How it could affect receivables? Please explain, sombody
@pankajharish, please explain why you talking about receivables? Purchase return is what we buy and return, so it should be in payables a/c or not?
Hello Olga,
we don’t take into account $1000 because it doesn’t affect your payables account.
when you have an undercast (understated) error, that means one side of transaction was done, but the second is missing
so in our case accountant did in payables account Dr $1000, but forgot to do Cr $1000 in Purchases.
hope this helps.
Credit to Kaymakov, He suggested the answer in Forums.
Dear Sir,
Kindly refer (18.00) onward in your lecture.
I would be thankful if you’d explain the refund entry to me, because what if we have received the the correct amount, and we are only repaying him due to the returns, as you also mentioned that refund could be the reason for returns.
Wouldn’t the correct entry then be returns (Dr) and receivable (Cr) ?
Kindly correct me if i’m wrong sir,
Thank you.
@ajlaltariq, @admin please explain this to me too…
What happens if we received the correct amount but we are repaying due to returns.. shouldnt this be a credit to the receivables to reduce ?
@msoph, @johnmoffat please advise sir.
@ajlaltariq, I am sorry for not answering this sooner
The entry for a refund (whatever the reason for it) is always the same as in the lecture.
If someone returns goods to us, then we credit receivables (because they owe us less) and debit returns.
If there still ends up with a debit balance on their receivables account (because they have made other purchases from us) then we probably will not make a refund – the will just pay us less.
If we do make a refund of cash then we enter it as in the lecture i.e. credit cash and debit receivables.
I hope that makes sense
@johnmoffat, thanks for your explanation, but I’m still having a hard time getting my head around this. Your explanation in the video is simple enough. The entries are simply the reverse of when we make a sale, and the balance on the accounts return to the status quo ante.
However I’m still not getting it logically. Receivables is an asset, right? It’s the money we’re owed. Assets are increased in the debit column. How can we gain in assets by paying someone back? How can the money that we’re owed increase?
@marcusdixon, to correct my first sentence, it’s to return to the status quo ante before making the customer made the payment, rather than the status quo ante before the sale was made on credit. However my logical problem from my second sentence, ie how the refund of cash can somehow boost an asset (ie receivables) remains.
@marcusdixon, A refund is simply a repayment, and there can be several reasons why you might decide to repay cash. For instance a customer might have paid an invoice twice by mistake and therefore you repay (refund) the overpayment.
If a customer owes you $100 then you have a debit balance on receivables of $100 (an asset!!).
If the customer pays you the $100 twice by mistake, then you debit cash with $200 and credit receivables with $200. That means you have a credit balance on receivables of $100 (a liability!!!).
So…you refund the $100 overpayment – credit cash and debit receivables. That means the balance on receivables is now zero which is correct – he does not owe you and you do not owe him.
It does not matter why you are making the refund – it could be because of an overpayment, it could be because you have entered a credit note for a return.
A refund is always, for whatever reason, a repayment of cash and therefore the entry is always to credit cash and debit receivables.
(and why should a repayment of cash not boost an asset? Less cash is reducing assets, more receivables is increasing an asset, which is the whole essence of the dual effect / double entry concept.)
as i am using a low speed internet connection , it is quite hard for me to buffer the video every time when i need to see it. it will be really helpful if the website it provide us with a download link .
tanks alot well understood i was able 2 concord a qestion from dec-2011 past paper but what about control account Reconcilation….
@wagistic,
Soft Supplies Co recently purchased from Hard Imports Co 10 printers originally priced at $200 each. A
10% trade discount was negotiated together with a 5% cash discount if payment was made within 14
days. Calculate the following.
(a) The total of the trade discount
(b) The total of the cash discount
(a) $200 ($200 * 10 * 10%)
(b) $90 ($200 * 10 * 90% * 5%)
Somebody please explain where 90% came from.
@tomasrast, Because of the trade discount of 10%, the invoice amount will only be 180 for each printer (90% of 200).
The cash discount is based on the invoice amount – 5% of 180 = $9 per printer.