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Hallo,
– Why in the below (2) is not included in the answer, i.e. only 1 and 3, are taken into account? Shouldn’t we subtract 1000 as well?
The total of the list of balances in Valley’s payables ledger was $438,900 at 30 June 20X6. This balance did not agree with Valley’s payables ledger control account balance. The following errors were discovered:
(1) A contra entry of $980 was recorded in the payables ledger control account, but not in the payables ledger.
(2) The total of the purchase returns daybook was undercast by $1,000.
(3) An invoice for $4,344 was posted to the supplier’s account as $4,434.
What amount should Valley report in its statement of financial position as accounts payable at 30 June 20X6?Answer: $437,830.
Thank you!
The only place that we use totals from the books of prime entry is the control accounts.
In the individual accounts in the payable ledger, every amount is entered separately. The totals of the books are not used in the individual accounts.
(The free lecture on books of prime entry explains this)
Hi John,
That’s because it is saying about the Purchase Returns Daybook, but if said about “returns not included”, we would need to count it as well, right?
Hallo,
I read the chapter, and I didn’t see somewhere the word “control a/c” mentioned.
So, I read there is:
1. Daybooks (Cash pmts,Cash receipts and the rest of a/cs taking part in them)
2. Payables and Receivables journal (for individual a/cs)
3. Payables ledger (for individual a/cs) and the respective list of balances
4. Receivables ledger (for individual a/cs) and the respective list of balances
5. Nominal ledger – totals of the above a/csQ1: All from 1 to 4, are not part of the double entry booking, is it correct? I don’t understand why the payables and receivables ledgers (3 & $) are not, as they have a dr and a cr side?
Q2: Which one of these accounts is also called a “control a/c”?
Thank you!
The word control account is mentioned in the lecture that goes with the notes (the notes are not for using on their own). There is also a whole lecture and chapter on control accounts.
Q1: Correct. I to 4 are not part of the double entry. (The payables and receivables ledger have a dr side and a cr side if they are recorded in a book, but they don’t have to be in a book. Dr and Cr simply mean left and right 🙂
Q2: The receivables account in the nominal ledger is also called the Receivables ledger control account; the payables account in the nominal ledger is also called the Payables ledger control account.
Hallo,
Maybe I am thinking in the wrong direction, but if:
“2. Payables and Receivables journal (for individual a/cs) – is the same as purchases and sales day books, which are books of prime entry”
and if “The only place that we use totals from the books of prime entry is the control accounts.”
=> why if “(2) The total of the purchase returns daybook was undercast by $1,000.”, that wouldn’t mean the Payables ledger control a/c was also undercast? I.e. if the daybook totals go directly to the ledger control a/c, if one of them is undercast, so will the other.
=> And further, the payables ledger is only a memorandum, nothing from it, goes to the payables control a/c, so it can’t influence it. So, if 980 was not recorded in the payables ledger (serving as a memo), this wouldn’t influence the total payables for the year, would it?
All in all, I would say that then we solve it like this: 438,900 – 1000 (as purchase return daybook total goes to control a/c and payables have to decrase) – 90 (as purchase day book total also goes to the control a/c). This gives us the correct amount for payables in the SOFP.
Or maybe if the answer is $437,830, then the question should ask for the amount of the correct list of balances and not what is in the SOFP as Payables. am I right, or wrong somewhere?
Thank you!
p.s. I first watched the lectures a while ago, and now re-reading the notes.
The question did not ask you to correct the control account total. It gave you the total of the payables ledger balances and this is what you need to correct.
When it is corrected it would be then the correct figure for the SOFP (and would be the same as the correct total on the control account, but obviously you cannot calculate the control account);
Hallo,
I watched the lecture as well, and I don’t know why this example is still confusing, tried to explain it again:
1. If Valley is our supplier we don’t consider the undercast purchase return of 1000, because the example says its “total” was undercast, if it would say how much was returned only to Valley then we could consider it, is that the reason?
2. Are the purchase returns reflected in a supplier’s individual a/c as well, when there are such, I guess yes, since we will have then a purchase returns journal/daybook?
3. I think the question asked at the end of the example is confusing, if Valley is our only supplier, then the amount in the Payables ledger will be the same as the amount in the SOFP, otherwise not, and it is not understood from the example do we have more than one supplier, or not, do you agree?
4. Or, maybe Valley is not our supplier, but the name of the company reporting its payables, I don’t understand who is Valley….
Thank you!
It is not the return that is undercast, it is the total of the returns daybook.
Maybe the return was 5,000 for example. In that case 5,000 would be entered in the day book and 5,000 would be entered in the suppliers account in the payables ledger.
However when the daybook is added up (the total of all the returns to everyone) the total was 1,000 to low. If the total is wrong then it does not affect the payables ledger but it does affect the control account because it is the total that is entered in the control account.
Ok, I fully understand your last statement.
And one more thing, you said, that since I was given the list of balances this is what I needed to correct, but they are asking for the amount of payables in the SOFP, and now I see two questions, one is asking for the amount in the payables ledger and the other in the Payables ledger control a/c and these two cannot be the same as long as we don’t correct for 1000 in the payables ledger control a/c.
How can I be certain what they are asking?
Thank you!
–
Whichever figure they give you they want the correct final balance.
If they give you the total of the list of balances then you correct for those items that affect the list of balances.
If they give you the balance on the control account, then you correct for those items that affect the control account.I am sorry but this Question continues to confuse me, even if I saw the lecture and notes again. I searched through the internet and found the following statement on site
‘At the end of each accounting period (usually monthly), the purchases returns day book totals are used to update the general ledger accounts.’
Is this statement incorrect? Or am I misunderstanding?
The statement is correct and is exactly as I showed in my lecture.
However, for exams from 20 September (yesterday) the syllabus has changed and Books of Prime Entry and Control Accounts are no longer examinable.
Our lecture notes and free lectures have been updated for the new syllabus.
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