Control Account Reconciliations Flashcards
What is the problem that arises as it is the totals of the BOPE that are posted to general ledger?
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.
What are memorandums/subsidiary ledgers?
- 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.
Any transactions related to receivables/payables must be recorded in…
2 places — The general ledger and the memorandum ledger
Describe the Control Account Reconciliation
- 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.
What is the advantage of computerised accounting software with regards to control account reconciliations?
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
The receivables account in the general is sometimes called the receivables ledger control account (RLCA) WHY?
As it ‘controls’ the total figure of the receivables ledger.
When a customer returns goods to us we are likely to issue them with a…
Credit note
What is a credit note?
Effectively a negative invoice so we account for credit note as though they are negative sales/purchases
Describe the journals posted when issuing a credit note
Sales returns:
- Dr Sales returns (P/L)
- Cr Receivables (SFP)
We also record this in the receivables ledger.
Describe the double entry for a purchase return
Dr Payables (SFP)
Cr Purchase Returns (P/L)
NB Returns figures are deducted from sales or purchases figures in the financial statements.
Describe contras
- 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.
How would you record a contra?
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.
The contra will always (2) …
- Be the lowest amount owed
- Must be entered also in the individual accounts in the memorandum ledgers
What are the 2 types of discounts?
- Trade Discount
- Settlement Discount
Describe a trade discount
- 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
Describe settlement discounts
- 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)
What journals do we post then a customer takes our settlement discount?
Dr Cash
Cr Receivables
And
Dr Discounts allowed (P/L)
Cr Receivables
In order to reduce the receivable to zero
Discounts allowed show as an…
Expense in the P&L
What is the double entry when we receive a settlement discount from our supplier?
Dr Payables (SFP)
Cr Discounts received (P/L)
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.
- 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.
What is the approach taken to reconcile the difference between the receivables and payables accounts in the general ledger, and the sales/payables ledger?
- Set up a proforma
- Work through the question line by line and determine if the problem is with the general ledger accounts or the list of balances.
- Adjust the general ledger balances or the list of balances as necessary.
What is the approach taken to reconcile the difference between the receivables and payables a
What is the approach taken to reconcile the difference between the receivables and payables a
What is the approach taken to reconcile any differences between the balance in the general ledger and the sales/payables ledger?
- Set up a proforma
- Work through the question line by line and determine if the problem is with the general ledger accounts or the list of balances.
- Adjust the general ledger balances or the list of balances as necessary.
