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Hallo,
When solving this example, the closing balance of the list of balances is included in the control a/c and I don’t understand and haven’t seen this so far, I thought we only compare them, but why is this done so here:
Example:
Tyrell proves the accuracy of its sales and purchase ledgers by preparing monthly control accounts. At 1 May 2012 the following balances existed in the company’s accounting records, and the control accounts agreed:Sales ledger control account op. balances
Debit 188,360
Credit 2,140During May 2012 the following transactions took place:
Credit sales 101,260
Returns inwards 9,160
Cash received from customers 91,270
Cash discounts allowed 1,430
Irrecoverable debts written off 460
Contra settlements 480At 31 May 2012 the balances on the customers and supplier personal accounts were extracted and totalled as follows:
Sales ledger
Debit balances To be ascertained
Credit balances 2,680A credit balance of $680 had been omitted when listing the sales ledger personal accounts,
(ii) A contra settlement of $500 had not been included in the totals of transactions prepared for the control accounts,
(iii) A new employee had mistakenly entered five sales invoices into the purchases day book as if they had been purchase invoices and entered the amounts to new supplier personal accounts. The total of these invoices was $1,360.
(iv) A $20 cash refund to a customer was made, and has not been included in the summary of transactions given above. The $20 was entered to the customer’s personal account as if it had been a cash receipt from the customer, and this resulted in a $40 credit balance on the account, which was still outstanding at 31 May 2012.Solution: I will give it only for Sales Ledger control a/c, as my question is analogous to the Purchase ledger control a/c:
Sales Ledger Control Account
Dr
Balance b/d 188,360
Credit sales 101,260
Credit sales (omitted invoices) (iii) 1,360
Cash(cash refund)(iv) 20
Balance c/d (Insert from adjustmen iv above) 3,320 = 3360-40 (2×20) (Why?)
= Total 294,320
Balance b/d 188,880Cr
Balance b/d 2,140
Returns inwards 9,160
Cash received from customers 91,270
Cash discounts allowed 1,430
Irrecoverable debts written off 460
Contra with purchase ledger 480
Contra adjustment (ii) 500
Balance c/d (Balancing figure) 188,880
= Total 294,320
Balance b/d 3,320My Q: Why in the Sales ledger control a/c they have entered as a Cr
“Balance c/d (iv above) 3,320 = 3360-40 (2×20)”
– can we do without it, or it’s necessary?
– I don’t see a reason to include it, or is there?Otherwise, when they solve for the list of sales ledger balances they find its opening balance, is this why they include the list of balances in the control a/c, as they seem then interrelated?
At 1 May 2012 ? – Missing figure found backwards => 184,840
Omitted credit balance (680)
Sales invoices omitted 1,360
Cash refund error 40
_____
At 31 May 2012 (188,880 – 3,320) 185,560Thank you!
The net balance on the control account before corrections is:
188360 – 2140 + 101260 – 9160 – 91270 -1430 -460 – 480 = 184680
However, correcting for the mistakes, the net balance should be:
184680 – 500 (missing contras) +1360 (missing invoices) +20 (missing refund) = 185560
In the receivables ledger there is a credit balance at the moment of 2680. However this should be 2680 + 680 (balance omitted) – 40 (credit balance which should not exist) = 3320
So, the correct total of the debit balances in the ledger should be 185560 + 3320 = 188880.
However, the total of the debits is wrong at the moment because it does not include the missing invoices of 1360.
So the existing total of the debit balances is 188880 – 1360 = 187520.
Hallo,
1. But, they say that the opening balance of the list of balances is:
At 1 May 2012 => 184,840, so they don’t include the 2680, why?2. I got confused as well, that they enter the 3320 on the dr side of the SLCA, and I was wondering why, what does that help in solving the example? We can find the closing balance in the SLCA without it anyway?
3. Could you explain why they say that the $20 was entered to the customer’s personal account as if it had been a cash receipt from the customer, this results in a $40 credit balance on the account? Why do they say $40 credit balance, how is it decided that it is a credit balance, to correct this we have to enter 40 on the dr side?
Thank you!
I do not know why that say that the balance at 1 May 2012 is 184,840, I didn’t write their answer!
According to what you typed, the question said there was a debit of 188,360 and a credit of 2,140.Again, I cannot tell you why they typed 3,320 on the debit side of the control account. What I typed in my previous reply is correct.
The $20 was a refund. They would only have made a refund if they owed money to the customer. So there must have been a $20 credit balance.
When they refund the money, the correct entry would have been to cr cash and dr ledger account, so the balance would have been zero.
However, since the by mistake credited the ledger account it would have left a credit balance of $40.Hallo,
Ok, thanks a lot, I understood the 40 reason, we have once a Cr 20 as “owing to” and once again Cr 20, because of their mistake in the SLCA.
I think the reason for their amount to be 184840 is because of the following that they do:
187520 – 2680 = 184840
Also, this answer is received when:
cl.bal. 185560 – 1360 – 40 + 680 = op. bal. 184840, so they find what the op. bal. is before making the corrections for 1360/40/680, and I don’t know why they have excluded the closing balance of 2680, do you know why, maybe because we use now the 185560 as closing balance instead of 2680, or is there another reason?
Also, we get the same number of 184840 if we do:
188880 – 2680 – 1360 = op. bal. 184840, I assume the 188880 includes the cl. bal. of 2680 (or maybe this is not correctly said), so here it is removed, the1360 is subtracted again to get the status before correction.So, they work backwards, the only thing I don’t quite understand is what role the 2680 plays, it is added to the 185560 to get to 188880, and is subtracted from 188880 to get to the opening balance, what is the meaning of it, as now they cancel each other?
If I make a check with your number for op. bal. of 187520, I don’t get the closing balance of 185560, e.g.
187520+40+1360-680 = 188240
and
184840+40+1360-680 = 185560What do you think?
Thank you!
Yes – you are correct. I should have got 184840 (as per your last line).
I haven’t bothered with what they have done. I have done it what I think is the most sensible and easiest way. It is up to you which way you do it because all that will be marked is the final answer anyway.
Hey John,
Could you tell me in above answer why did you add the personal account’s cr balance in SLCA . ThanksBecause the overall figure on the control account will be the debit balance less the credit balance. So the debit balance is the overall figure plus the credit balance.
Hey John,
Sorry i need some explanation on this. Sales ledger is list of debtor. SLCA is total receiveable. In the first place, why we are carrying Dr and Cr balances in Sales ledger and SLCA instead B/f Dr Balance. Secondly why we add sales ledger cr balance in SLCA. Because we carried Sales day book down in SLCA. THANKSMost receivables ledger balances will be debit balances because they owe us money.
However, it is possible for there to be a credit balance (for example, maybe a customer has accidentally overpaid).
Suppose there are customers owing us 10,000 in total and also one customer who has overpaid and so we owe them 1,000.
That means that the net balance on the receivables ledger control will be 9,000.
If that includes one credit balance of 1,000 then it means the total of the debit balances will be 10,000.
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