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Unfortunately I keep getting confused on this topic:
The total of the balances in a company’s trade receivables ledger is $800 more than the debit balance on its trade receivables control account. Which one of the following errors could by itself account for the discrepancy?
A One receivables ledger account with a credit balance of $800 has been treated as a debit balance.
B Settlement discounts totalling $800 have been omitted from the nominal ledger.
C The sales day book has been undercast by $800.
D The cash receipts book has been undercast by $800Answer is C
Options B and D would have the opposite effect: credit entries in the control account would be understated
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1- The receivables ledger account does not affect the control accounts so its not A, correct?2- Settlement discounts does not affect the receivables control, only the payables control account?
3- For B- If I omitted the settlement discount that means I did not debit the payables account, so wouldn’t credits be overstated?
The balance on the receivables account should equal to the total of the balances in the receivables ledger.
A is wrong because it would make the total of the receivables ledger 1,600 too high (they should have subtracted 800 but they have added 800)
B is wrong because presumably they have been dealt with in the receivables ledger (which makes the total smaller) but they have not been dealt with in the receivables account.
D is wrong because the total will have been posted to the receivables account and made the balance higher than it should be.
I thought that if the sales day book was undercast that this would not cause a discrepancy or need for a suspense account because it would affect both the sales and receivables accounts in the nominal ledger.
It won’t result in the need for a suspense account, but that is not what the question is asking. It is asking about the balance on the control account being different from the total of the individual balances in the receivables ledger (which is nothing to do with suspense accounts).
For this you need to watch my free lectures on Books of Prime Entry.
Ah. I just noticed! Yes thank you – I’ve actually watched it a few times- I wouldn’t understand this topic if it wasn’t for those lectures! Unfortunately I need to get a grasp on the confusing terminology!
The time you take to respond is unbelievable helpful! Thank you again!
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