Control Account Reconciliations

Question 1

What is the problem that arises as it is the totals of the BOPE that are posted to general ledger?

Answer 1

Although the receivables figure in our general ledger should give us an accurate picture of the total amount owed to us by our credit customers it is impossible to see how much is owed to us by an individual customer.

The same problem exists with the payables balance for amounts we owe to our suppliers.

Question 2

What are memorandums/subsidiary ledgers?

Answer 2

• Separate records from the general ledger that keep track of the individual amounts owed to us by each of our customers and the amounts we owe to each of our suppliers.
  — The memorandum ledger for recording the amounts owed to us is the receivables ledger.
  — The memorandum ledger for recording the amounts that we owe to our suppliers is called the payables ledger.

Question 3

Any transactions related to receivables/payables must be recorded in…

Answer 3

2 places — The general ledger and the memorandum ledger

Question 4

Describe the Control Account Reconciliation

Answer 4

• Because we have two records of debts owed to us by our customers (that is the total receivables balance in the General Ledger and the individual balances on the receivables ledger so we compare them, and they should agree.

Question 5

What is the advantage of computerised accounting software with regards to control account reconciliations?

Answer 5

The automatic transfer of data into the control accounts as there is no need to manually copy transactions from the BOPE into the general ledger AND the memorandum ledgers.

This reduces the chances of errors being made and saves time

Question 6

The receivables account in the general is sometimes called the receivables ledger control account (RLCA) WHY?

Answer 6

As it ‘controls’ the total figure of the receivables ledger.

Question 7

When a customer returns goods to us we are likely to issue them with a…

Answer 7

Credit note

Question 8

What is a credit note?

Answer 8

Effectively a negative invoice so we account for credit note as though they are negative sales/purchases

Question 9

Describe the journals posted when issuing a credit note

Answer 9

Sales returns:
- Dr Sales returns (P/L)
- Cr Receivables (SFP)

We also record this in the receivables ledger.

Question 10

Describe the double entry for a purchase return

Answer 10

Dr Payables (SFP)
Cr Purchase Returns (P/L)

NB Returns figures are deducted from sales or purchases figures in the financial statements.

Question 11

Describe contras

Answer 11

• It may that a business has a customer who is also a supplier.
• When this happens we will owe them money but they also owe us money.
• Rather than pay each other the full amount they will cancel out the lower amounts and just pay the balance.

Question 12

How would you record a contra?

Answer 12

If we owe A £1000 and they owe us £1200, we would make A pay £200 effectively cancelling out the £1000 we both owe to each other

• Dr Payables £1000
• Cr Receivables £1000

It must reduce both the receivables;es and the payables.

Question 13

The contra will always (2) …

Answer 13

• Be the lowest amount owed
• Must be entered also in the individual accounts in the memorandum ledgers

Question 14

What are the 2 types of discounts?

Answer 14

1. Trade Discount
2. Settlement Discount

Question 15

Describe a trade discount

Answer 15

• An inducement to make somebody buy our goods.
• This is given at point of sale so it is certain it will be taken.
• We account for the invoice value after the discount has been taken, e.g., 10% discount for a £100 would be recorded as…
  — Dr Receivables £90
  — Cr Sales £90

Question 16

Describe settlement discounts

Answer 16

• Discounts given as an inducement for a customer to pay early.
• At the time when the discount is given it is not certain whether or not it will be taken. So when we fist make the sale we do not account for the discount. We only account for it if it has been taken.
• A 10% of discount on £100…
  — Record the sale: Dr Receivables £100, Cr Sales £100
  — Customer pays after days agreed so discount not taken so usual entry of: Dr Cash £100, Cr Receivables £100
  — Customer pays within days agreed so discount taken: Dr Cash £90, Cr Receivables £90 AND Dr Discounts allowed (P/L) Cr Receivables £90 (SFP)

Question 17

What journals do we post then a customer takes our settlement discount?

Answer 17

Dr Cash
Cr Receivables

And

Dr Discounts allowed (P/L)
Cr Receivables

In order to reduce the receivable to zero

Question 18

Discounts allowed show as an…

Answer 18

Expense in the P&L

Question 19

What is the double entry when we receive a settlement discount from our supplier?

Answer 19

Dr Payables (SFP)
Cr Discounts received (P/L)

Question 20

Remember the totals of day books and cash books are posted to the __ and __ accounts in the __ __. Totals are not posted to the __ or __ ledger.

Answer 20

• Receivables
• Payables
• General ledger
• Receivables or payables ledger

If there is an error to the totals that are posted it will always be an adjustment to the receivables or payables balance in the general ledger.

Question 21

What is the approach taken to reconcile the difference between the receivables and payables accounts in the general ledger, and the sales/payables ledger?

Answer 21

1. Set up a proforma
2. Work through the question line by line and determine if the problem is with the general ledger accounts or the list of balances.
3. Adjust the general ledger balances or the list of balances as necessary.

Question 22

What is the approach taken to reconcile the difference between the receivables and payables a

Question 23

What is the approach taken to reconcile the difference between the receivables and payables a

Question 24

What is the approach taken to reconcile any differences between the balance in the general ledger and the sales/payables ledger?

Answer 24

1. Set up a proforma
2. Work through the question line by line and determine if the problem is with the general ledger accounts or the list of balances.
3. Adjust the general ledger balances or the list of balances as necessary.

Question 25

The wages control accounts brings together transactions from the following payroll accounts (4):

Answer 25

1. Wages expense account
2. Pension fund account
3. Voluntary deductions account
4. HM Revenue and Customs liability

Question 26

What is the accounting entry for gross wages (an expense to the business)?

Answer 26

Dr Wages Expense Account
Cr Wages control accounts

Question 27

What is the accounting entry for PAYE Income Tax (deducted from gross wages)?

Answer 27

Dr Wages control account
Cr HMRC liability

Question 28

What is the accounting entry for Employee NI (deducted from gross wages)?

Answer 28

Dr Wages control account
Cr HMRC liability

Question 29

What is the accounting entry for Employee pension contribution (deducted from gross wages)?

Answer 29

Dr Wages control account
Cr Pension fund account

Question 30

What is the accounting entry for Net Wages (actually paid to staff)?

Answer 30

Dr Wages control account
Cr Bank

Question 31

What is the accounting entry for Employer NI (an expense to the business)?

Answer 31

Dr Wages expense account
Cr Wages control accounts

Question 32

What is the accounting entry for Employer Pension Contribution (an expense to the business)?

Answer 32

Dr Wages expense account
Cr Wages control account

Question 33

What is the accounting entry for transfer of employer NI?

Answer 33

Dr Wages control account
Cr HMRC liability

Question 34

What is the accounting entry for transfer of pension contribution?

Answer 34

Dr Wages control account
Cr Pension fund account

Question 35

Be careful to distinguish between ___ deductions such as ___ (which are deducted from the gross wage and do not form a separate expense to the business) and ___ payments which do form an expense on top of the gross wage.

Answer 35

• Employee
• PAYE
• Employer