State the reasons for maintaining control accounts. (4 Marks)(a) The following figures were extracted from the records of Ukweli Limited for 6 months ended30th June 2019KshsOpening Balances on 1st January 2019-Sales Ledger Dr 142,800Purchases Ledger Dr 1,050Sales Ledger Cr 4,050Purchases Ledger Cr 55,380Sales Ledger debit balances offset against purchases ledger 3,690Discounts-Allowed 20,970Discount - Received 14,250Purchases (Including Cash purchase of KSh 2,000) 120,200Cash sales 61,800Credit sales 206,820Credit notes to customers for goods returned 7,500Payments to creditors 115,920Cash purchase 13,200Interest charged by creditors on overdue accounts 6,900Receipts from customers 157,800Bad debts written off 3,720Customers ‘unpaid cheques 2,610Interest charged to customers 9,600Debt collection expenses charged to debtors 1,080Credit notes received for goods returned to suppliers 2,670Required:Prepare the Purchases and sales Ledger Control accounts for the six months ended 30thJune 2019 (16 Marks)*END*
Question
State the reasons for maintaining control accounts. (4 Marks)(a) The following figures were extracted from the records of Ukweli Limited for 6 months ended30th June 2019KshsOpening Balances on 1st January 2019-Sales Ledger Dr 142,800Purchases Ledger Dr 1,050Sales Ledger Cr 4,050Purchases Ledger Cr 55,380Sales Ledger debit balances offset against purchases ledger 3,690Discounts-Allowed 20,970Discount - Received 14,250Purchases (Including Cash purchase of KSh 2,000) 120,200Cash sales 61,800Credit sales 206,820Credit notes to customers for goods returned 7,500Payments to creditors 115,920Cash purchase 13,200Interest charged by creditors on overdue accounts 6,900Receipts from customers 157,800Bad debts written off 3,720Customers ‘unpaid cheques 2,610Interest charged to customers 9,600Debt collection expenses charged to debtors 1,080Credit notes received for goods returned to suppliers 2,670Required:Prepare the Purchases and sales Ledger Control accounts for the six months ended 30thJune 2019 (16 Marks)END
Solution
Control accounts are maintained for the following reasons:
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To check the arithmetical accuracy of the ledger: Control accounts provide a check on the accuracy of entries made in the personal accounts in the sales ledger and purchase ledger. It is very easy to make a mistake in posting entries, because there might be hundreds or even thousands of entries to make. Comparisons with control accounts help to identify on a timely basis those mistakes that affect the balancing of the sales ledger and purchase ledger.
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To provide a summary of transactions: Control accounts provide a summary of transactions relating to the total debt owed by customers, the total credit owed to suppliers, etc. This is useful for management to take a view of its debtors and creditors and amounts involved at a glance.
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To locate errors: Control accounts are useful for locating errors in the sales ledger and purchase ledger. If the total of the individual balances on the debtors or creditors ledger does not agree with the total on the control account, it is clear that errors have been made.
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To prevent fraud: Control accounts are a part of the internal check system. They enable the business to identify any irregularities such as fraud or misappropriation of funds. By regularly reconciling the control accounts with the individual accounts in the sales and purchase ledger, any irregular transactions or balances can be identified and investigated.
Now, let's prepare the Purchases and Sales Ledger Control accounts for Ukweli Limited for the six months ended 30th June 2019.
Sales Ledger Control Account:
Opening Balance: 142,800 (Dr) + 4,050 (Cr) Credit Sales: 206,820 Receipts from Customers: 157,800 (Cr) Discounts Allowed: 20,970 (Cr) Bad Debts: 3,720 (Cr) Interest Charged to Customers: 9,600 Debt Collection Expenses: 1,080 Closing Balance: (To be calculated)
Purchases Ledger Control Account:
Opening Balance: 1,050 (Dr) + 55,380 (Cr) Purchases: 120,200 - 2,000 (Cash Purchase) = 118,200 Payments to Creditors: 115,920 (Cr) Discounts Received: 14,250 (Cr) Interest Charged by Creditors: 6,900 Credit Notes Received: 2,670 (Cr) Closing Balance: (To be calculated)
Please note that the closing balances are calculated by balancing the debit and credit sides of the control accounts.
Similar Questions
State the reasons for maintaining control accounts.
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