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John Moffat.
John Moffat.-
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finnnnn
- Topics: 3
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A receivables ledger control account had a closing balance of $8,500. It contained a contra to the
payables ledger of $400, but this had been entered on the wrong side of the control account.
What should be the correct balance on the control account?
A $7,700 debit — ans
B $8,100 debit
C $8,400 debit
D $8,900 debitHI sir, I got the answer right, but shouldn’t contra entry be on cr side of receivables?
thanks
finnnnn
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Also sir, why is Cash refunds to credit customers on the dr side of receivable? shouldn’t it be credit side since we are losing money?
thank you
John Moffat
- Topics: 57
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Yes – the contra entry should be on the credit side of receivables.
They had entered it on the wrong side, so they had debited receivables. Therefore the closing balance (which is obviously a debit) was too high and needed reducing.If we give a cash refund we are not losing money. We are simply repaying money to the customer because (for example) they paid us too much in the first place.
The entry is therefore Cr Cash Dr Recievables.
I do explain this in my free lectures. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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