Chapter 7 Flashcards
What are control accounts?
an account in the statement of financial position which, when all transactions are settled, would have a nil balance
credit transactions with customers and suppliers are recorded in the receivables and payables accounts in the nominal ledger (these are called controls accounts)
What is the problem with control accounts for a business?
only deals with total amounts (totals from the daybooks are posting in the nominal ledger
a business needs to know how much it is owed from each individual customer and how much it owes to each supplier
How is the ‘totals’ problem for control accounts fixed?
Using memorandum ledgers
1) Receivables ledger (known as sales ledger or customer ledger)
2) Payables ledger (known as purchase ledger or supplier ledger)
How are memorandum ledgers set up? wordy
-entries are made when transactions are recorded in the sales and purchase day books and the cash book.
-invoices will be recorded on one side, payments received from customers with be recorded on the other side and matched or offset
not part of nominal ledger - but double entry principles do apply
Where are sales debited?
Receivables control account
Where are purchases credited?
payables control account
Receivables control account - where is balance brought forward
as a debit balance
payables control account - where is balance brought forward
as a credit balance
Where does the PCA and RCA balance go to?
the Statement of financial position
When does a contra entry arise?
Where we have a supplier who is also a customer, they owe us and we owe them so we agree to cancel out the middle bit
define contra
entry in the ledger which cancels out or ‘contras’ an opposite entry in another or the same ledger
c/ is symbol
What effects the control accounts?
Returns
Discounts
Refunds
Contras
Irrecoverable debts
What is the double entry for contras
Dr Payables control (reduce)
Cr Receivables control (reduce)
What is another term for receivables control account
sales ledger control account
What is another term for payables control account
purchase ledger control account
For the RCA - what is debited
Increase the amount we are owed
Sales
Customer Refunds
Dishonoured cheques
For the RCA - what is credited
Cash from Cash receipts book
sales returns
irrecoverables debts
contra
for the pca - what is debited
cash (against purchases
Purchase returns
Discounts received
Contra
for the pca what is credited
purchases
supplier refunds
What is a control account reconciliation?
checking that sum of balances in memorandum sales ledger = balance b/f from rca
or memorandum purchase ledger w pca
What does a control account reconcilliation do?
detect anything where a different amount is recorded in the control account to the memorandum account
What is process flow for sales
1) Sales, purchase and cash - SDB, CB and PDB
2) Memorandum ledger accounts
3) day books posted to nominal ledger - Sales, purchases, receivables, payables
