- 20 Marks
FA – Nov 2019 – L2 – SB – Q4 – Control Accounts
The question requires differentiating between receivables and payables control accounts, highlighting the uses of control accounts, and preparing sales and purchases ledger control accounts using provided transaction data.
Question
a. The Chief Executive Officer (CEO) of Favourite Gift Shop buys and sells gift items to both individuals and organisations. The CEO has close personal relationships with her business partners and knows the amount owed to her suppliers.
In a recent meeting held between the CEO and the Auditor, the Auditor brought up the issue of the unavoidable need for the business to maintain the relevant control accounts. The CEO is seriously considering adhering to the auditor’s recommendation but needs further clarification on the issue.
Required:
i. Differentiate between receivables control account and payables control account. (2 Marks)
ii. Highlight FOUR uses of control accounts. (4 Marks)
b. The following information is extracted from the books of Favourite Gift Shop for October 1, 2019:
| Transaction | Debit | Credit |
|---|---|---|
| Sales Ledger Balance | N7,200 (debit) | N45 (credit) |
| Bought Ledger Balance | N100 (debit) | N2,910 (credit) |
| Sales Day Book Total | N105,540 | |
| Purchases Day Book Total | N94,150 | |
| Returns Inwards | N4,710 | |
| Bank Draft Received | N13,500 | |
| Cheques Payment to Suppliers | N82,000 | |
| Cheques Returned | N3,750 | |
| Bad Debts Written Off | N3,200 | |
| Cash Sales | N180 | |
| Discount Allowed | N1,350 | |
| Discount Received | N2,835 | |
| Returns Outwards Day Book | X | |
| Purchases Ledger Contra | N780 | |
| Petty Cash Paid to Suppliers | N100 | |
| Drafts Issued to Suppliers | N6,450 | |
| Debit Balance in Sales Ledger Transferred to Purchases Ledger | N780 | |
| Discount Withdrawn by Suppliers | N435 | |
| SMS Alerts for Cheques Received from Customers | N42,500 | |
| Discount Disallowed | N450 | |
| October 31, 2019 Sales Ledger Balance | N24,765 (debit) | N290 (credit) |
| October 31, 2019 Bought Ledger Balance | N114 (debit) | N4,260 (credit) |
Required:
i. Prepare the sales ledger control account for the period. (7 Marks)
ii. Prepare the purchases ledger control account for the period. (7 Marks)
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