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  1. Profile photo of AYO says

    1. pls, sir. while going through control accounts in chapter 16, i got stuck in test question 2 & 4.pls, i need a detailed explanation .
    2. is there any difference between receivables ledger control account & sales day book(receivables journal) ; payables ledger control account & purchases day book(payables journal) ?
    pls, i’ll appreciate it if you can reply as soon as possible.

    • Profile photo of John Moffat says

      Question 2

      Paul had not received the cash when the statement was prepared – when he has received the cash he will show Peter as owing 8950 – 4080 = 4870

      Paul has disallowed a discount, but Peter has not adjusted for it and he should do. So cancelling the discount will mean that he shows as owing to Paul 4140 + 40 = 4180.

      So the discrepancy remaining is 4870 – 4180 = 690.

    • Profile photo of John Moffat says

      Question 4:

      Because the only figure that we have is the total of the list of balances in the payables ledger, we need to correct that total and are only interested in errors in the payables ledger.

      The contra entry has not been recorded in the payables ledger, so we need to reduce the total by 980.

      The total in the returns journal will only affect the control account and is there not relevant here. (It is the individual figures that are entered in the payables ledger and so they are not affected if the total in the journal is wrong)

      The invoice that was wrongly posted does affect the payables ledger. Too much was posted to we need to reduce by the difference.

    • Profile photo of John Moffat says

      There is an enormous difference between the control accounts and the day books (journals).

      The control accounts are the t-accounts recording total receivables and total payables.

      The journals are not part of the double entry and are simply lists of sales on credit and purchases on credit.

      You should watch the lecture on Books of Prime Entry – all the books are explained with a big example.

  2. avatar says

    Hello John,
    Could you please explain me why in the Question 4 (Chapter 16) we don’t have to consider the Error 2, where the purchase returns journal was undercast by $1,000, to get the correct answer?

    Many Thanks!

  3. avatar says

    While perusing through my text I came across Cash pd to clear credit balances ( debited to r’bles control a/c) and Cash received clearing debit balances (credited to pybls control a/c), needed clarification please.

    • Profile photo of John Moffat says

      It is not easy to answer without seeing the example.

      I am guessing that maybe some of our receivables had overpaid us and therefore we had come credit balances. If they have paid us too much then we will give them their money back – cr cash; debit receivables. This then clears the credit balances.

      The came idea for the debit balances on payables.

  4. avatar says

    Please is sales returns the same thing as returns inwards and purchases returns the same things as returns outwards? Please can you help clarify? because I have seen questions in from this topic that the terms were used interchangeably?

  5. avatar says

    Hi John,

    With respect to the Refund to Customers entry, i do understand your explanation in the lecture, and i just wanted to ask what if for example, the customer purchases an item by cash, and then later on sees the price tag on it and realises that he was overcharged at the store. Given that it was a cash sale, and assuming he has no account, wouldn’t this be a scenario where you would credit cash and debit returns? i.e. no entries into Receivables A/C

    In the exam, do we always assume (unless told otherwise), that sales are on account? and as you said, any refunds are due to qualifying reasons (eg, over payment)?

    Cheers!

      • Profile photo of John Moffat says

        Because the figure we are given is the total of the payables ledger balances (not the control account balance).

        The payables ledger shows all the individual balances, and the total of any of the books is not relevant in the ledger each separate figure will have been entered in each separate payables account in the ledger. So the total of the ledge balances is not affected by the total of any of the books of prime entry being wrong.

    • Profile photo of John Moffat says

      A refund a repaying cash for the customer for some reason – for example, he may have owed us 100 but accidentally paid us twice and so we need to repay (refund) the extra 100.

      When we received the cash we debit cash and credit receivables.
      So if we then repay (refund) some of the cash for any reason, we do the opposite – credit cash and debit receivables.

  6. avatar says

    Need help here regardin f3
    A payables ledger control acc showed cr balance of 768420. Payables ledger balances total 781200. Which one of the following possible errors could account in full for the differences?
    A) A contra against a receivable ledger dr balance of 6390 has been entered to the cr side of payables ledger control acc
    B) The total of discount allowed 28400 was entered to the dr side of the payables ledger control acc instead of the correct figure for discount received of 15620
    C) 12780 cash paid to supplier was entered on the cr side of the supplier acc in the payables ledger
    D) The total discount received 6390 has been entered on the cr side of the payables ledger control acc

    Can someone explain to me each situation how to solve this. WHat are the accounts involved?
    I always have problem with this kind of questions and my answer is always more than 1 of those. The correct answer is B

    Question 2
    Which of the following errors should be identified by performing a receivebles control acc reconiliation?
    A) A sales invoice of 500 has been omitted from the sales daybook
    B) A sales return 45 was entered as 54 in the sales return day book
    C) Purchases of 72 were entered as sales return daybook and the individual acc
    D) The total of the sales daybook was miscast by 200
    Answer D
    Sales day book are credit sales but may i know how the accounts are involve in here?
    Thanks!

    • Profile photo of John Moffat says

      For question 1:

      A is wrong because they should have debited payables ledger control (not credited) – this would mean that the control account should have a lower balance. The difference would then be bigger.
      B is correct because the should have debited the control with the correct figure of 15620 instead of 28400. So they should have debited with 12780 less (the difference) which would make the control account balance 12780 bigger – it would then agree with the ledger total.
      C is wrong because they should have debited the ledger account with 12780 instead of crediting. This would make the total of the ledger balances smaller by two times 12780 – this is more than the difference we are looking for.
      D is wrong because the discount should have been entered on the debit side of the control account. This would make the control account balance smaller, which would have increased the difference.

      Question 2

      The entries in the receivables ledger are taken individually from the books of prime entry. The entries in the control account are the totals from the books of prime entry.

      A is wrong. If an invoice is missing from the book, then it will not have been entered in the ledger, and it will not be included in the total for the control account

      B is wrong. If an amount is listed wrongly in the day book, then the wrong figure will have been entered in the ledger, and the wrong figure will have been included in the total for the control account

      C is wrong because the 72 would have been entered in the ledger as though a return, and included in the total of returns for the control.

      D is correct, because having the wrong total makes the control wrong, but the ledger will have used the individual figures – not the total.

  7. avatar says

    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?

    • avatar says

      @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.

      • Profile photo of nzeadall says

        @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

      • avatar says

        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.

  8. avatar says

    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.

    • avatar says

      @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 ?

    • Profile photo of John Moffat says

      @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 :-)

      • avatar says

        @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?

      • avatar says

        @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.

      • Profile photo of John Moffat says

        @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.)

  9. avatar says

    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 .

  10. avatar says

    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.

    • Profile photo of John Moffat says

      @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.

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