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The Creditors Ledger Control Account of K O’Shea showed the following balances - €17,550 or €630 on 31/12/2007 - Leaving Cert Accounting - Question 2 - 2008
Question 2
The Creditors Ledger Control Account of K O’Shea showed the following balances - €17,550 or €630 on 31/12/2007. These figures did not agree with the Schedule (List) ... show full transcript
Worked Solution & Example Answer:The Creditors Ledger Control Account of K O’Shea showed the following balances - €17,550 or €630 on 31/12/2007 - Leaving Cert Accounting - Question 2 - 2008
Step 1
Prepare the Adjusted Creditors Ledger Control Account
Answer
To prepare the Adjusted Creditors Ledger Control Account, we will start from the initial balance and adjust for each error identified:
- Balance b/d: €630
- Add Invoice: The invoice was recorded as €570 instead of €510, resulting in an overstatement of €60.
- Adjustment: €630 + €60 = €690
- Add Credit Note Adjustment: The discrepancy in the credit note should be accounted for, correcting from €102 to €120; thus we add €18.
- Adjustment: €690 + €18 = €708
- Add Interest Adjustment: The correct interest charge reduces to €50 but was recorded using €67.
- Deduction for over-recorded interest: €67 - €50 = €17
- Adjustment: €708 - €17 = €691
- Add Cash Purchases: Cash purchases were incorrectly debited to a supplier’s account.
- Adjustment: Add €140.
- Adjustment: €691 + €140 = €831
- Less Returned Goods: Goods returned recorded properly but reflected incorrectly elsewhere.
- Adjustment of €10 remains considering double entry. Adjusted balance reflects proper proportion.
- Adjustment: €831 - €10 = €821
- Less Discount Disallowed: A discount of €32 disallowed but incorrectly treated as received; subtract €32.
- Adjustment: €821 - €32 = €789
Finally, the corrected balance carried forward needs to be reviewed: Balance c/d: €789.
Step 2
Prepare the Adjusted Schedule of Creditors showing the original balance
Answer
For the Adjusted Schedule of Creditors, start with the balance reported in the accounts:
- Balance as per list of debtors: €16,190
- Add:
- Invoice Correction: From previous calculations, adding the corrected €510.
- Discount disallowed: +€32, adding the overstatements.
- Cash Purchases Correction: +€140 for cash purchases now correctly placed.
- Total adjustment: €16,190 + €510 + €32 + €140 = €16,872.
- Less Deduction:
- Credit note adjustment: €222 (as stated)
- Interest deducted mismatched: including €17.
- Total deduction: €222 + €17 = €239
- Net Balance as per Adjusted Control Account:
- Resultant calculation: €16,872 - €239 = €16,633.
- Adjustments final balance: €16,633.
Step 3
Outline the advantages of Control Accounts to a firm
Answer
Control accounts provide several significant benefits to a business:
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Accuracy Checks: They act as a secondary verification system, allowing reconciliation between two sets of records (ledger accounts vs. control accounts).
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Error Detection: Control accounts can quickly reveal discrepancies and errors between the ledger and individual accounts. This allows for timely corrections to be made.
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Fraud Prevention: They make it harder for fraudulent activities to occur unnoticed, promoting a transparent financial process.
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Efficient Management: By summarizing information, control accounts enable management to monitor and review finances swiftly and efficiently, allowing for better decision-making.
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Simplified Reporting: They facilitate easier preparation of financial statements, as control accounts condense a lot of individual transactions into a single account, easing overall reporting.