theory

Question 1

4 advantages of ledger control accounts

Answer 1

1) to detect fraud - LCA is completed by different members of staff
2) to detect errors - RCLA should = receivables ledger schedule
3) to show trade payables and trade receivables- LCA balances show total amounts owed by trade receivables and owing to trade payables - enables managers to credit control and manage payments to payables
4) to provide trade receivables and payables totals for financial statements prep - trade payables and receivables figures for use in trial balance can be obtained from control accounts

Question 2

2 reasons by the RLCA may have a credit opening or closing balance

Answer 2

1) a trade receivable has overpaid on their account - that trade receivable is now owed money and becomes a liability
2) a credit note has be issued to a trade receivable on invoices already paid for

Question 3

2 reasons why the PLCA could have a debit opening or closing balance

Answer 3

1) a trade payable has been overpaid - payable becomes a receivable
2) a trade payable has issued a credit note on purchases-returns which have already been paid for

Question 4

6 TBOK errors

Answer 4

1) error of commission
2) error of omission
3) error of principle
4) reversal of entries
5) errors of original entry
6) compensating error

Question 5

what is the purpose of a suspense account

Answer 5

used to clear errors when the trial balance totals are different

Question 6

what are the 3 problems of keeping inadequate records

Answer 6

1) if trade receivables are unknown - unable to chase them - could lead to poor credit control = irrecoverable debts
2) if trade payables are unknown - risk of running out of inventory or overstocking - and suppliers may stop supplying inventory if payments aren’t paid on time
3) if inventory levels are unknown - risk of running out of inventory or overstocking - running out of inventory = lost sales and profit, overstocking= too much cash tied up in inventory = cash flow problems

Question 7

when do we add inventory to the incorrect closing inventory figure

Answer 7

1) inventory being used at an exhibition/head office
2) inventory in reps cars
3) inventory with customers on a sale-or-return basis (add back the unsold inventory not the sold)

Question 8

when do we subtract things from the closing inventory value

Answer 8

purchases, sales-returns