WAEC Financial Accounting 2011 Theory question 107

Theory question 107

Control Accounts

The following balances were extracted from the books of Haruna Enterprises for the month of February 2008: (D)
Balances – 1st February 2008: Sales ledger 320 Dr, 165 Cr; Purchases Ledger 275 Cr, 150 Dr
Transactions during February 2008:
Cheques received from debtors 1,850
Discounts allowed 75
Credit purchases 3,400
Credit sales 5,200
Discounts received 128
Cash paid to suppliers 1,400
Cheques paid to creditors 1,156
Cheques from credit customers dishonoured 250
Bills receivable 690
Bills payable 480
Returns outwards 115
Interest charged on outstanding debtors balance 120
Bad debts 360
Cash from credit customers 2,200
Refunds to customers for overpayments 100
Debit balances in respect of some suppliers set-off against their balances in the sales ledger 400
Balances on 28th February, 2008: Purchases ledger 142 Dr; Sales ledger 167 Cr
You are required to prepare: (a) Sales Ledger Control Account; (b) Purchases Ledger Control Account.

Show the model answer

Model answer

(a) Sales Ledger Control Account: Dr balance b/f 320; credit sales 5,200; dishonoured cheques 250; interest charged 120; set-off (purchases ledger) 400; refunds to customers 100; balance c/d (credit balances) 167 = D6,557. Cr balance b/f 165; cheques from debtors 1,850; discounts allowed 75; bills receivable 690; bad debts 360; cash 2,200; balance c/d D1,217 = D6,557
Balances b/d: Dr D1,217; Cr D167
(b) Purchases Ledger Control Account: Dr balance b/f 150; discounts received 128; cash 1,400; cheques 1,156; bills payable 480; returns outwards 115; balance c/d D788 = D4,217. Cr balance b/f 275; credit purchases 3,400; set-off (sales ledger) 400; balance c/d (debit balances) 142 = D4,217
Balances b/d: Cr D788; Dr D142
The set-off clears suppliers' debit balances in the purchases ledger (credit purchases ledger control) against their credit balances in the sales ledger (debit sales ledger control).

Explanation

Here suppliers have debit balances in the purchases ledger, so the set-off debits the sales ledger control and credits the purchases ledger control.