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Hello Sir,
Good day!
I’ve watched your lectures on control account reco. and understood the concept.
However, while solving the Kaplan practice question, I had difficulty understanding the credit balance on RLCA.
Q. At 1 May 20×4, an entity had balances on its trade receivables ledger control account of 32,750 debit and 1,275 credit. During May 20×4, sales of 125,000 were made on credit and receipts from credit customers amounted to 123,050. Refunds of 1,300 were made to customers during May 20×4. The total of credit balances on the trade receivables ledger control account at 31 May 20×4 was 2,000.
What was the total of the debit balances on the trade receivables ledger control account at 31st May?
Ans: 35,425
Refund was recorded as Dr Sales returns, Cr Cash.1.Could you please explain how the credit balance on the trade receivables account is treated? and what that opening Cr balance refers to in the question? and what does it mean when you say debit and credit balance on the RLCA? Receivables would have naturally have a Dr balance.
2. Refunds could be for overpayment or goods returned. They don’t mention that in the question. Am I to assume it was for goods returned and that is why it won’t form a part of the RLCA on the Dr side?
Thank you!
1 although most customers will be owing money and will therefore be a debit balance, there are come customers who have maybe overpaid, and they will be a credit balance.
2 a refund is a repayment of cash to a customer, and the correct entry is Cr Cash and Dr RLCA.
I do work through a very similar example in my free lectures on control accounts.
Thank you for providing the explanation! Much appreciated!
However, while solving the question, I recorded the same entry you mentioned. But the solution did not include it on the Dr side, instead they recorded it as a sales return. Which is why I got the wrong answer.
If the question was exactly as you typed it, then what they have done is wrong. A refund might result from there having been a return but the refund itself is always recorded the way that I wrote. (If there had been a return then the return would be recorded separately as Dr Sales Returns and Cr RLCA. The net effect of the two entries would be Dr Sales returns and Cr Cash, but we cannot assume that the refund is because of a return unless the question specifically says so.)
Yes, the question was exactly as I typed it. I thought I interpreted it wrongly or missed something while solving it.
Thank you so much for the clarification! It makes sense now.
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