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Control Accounts
Control Accounts Theory
| Question | Answer |
|---|---|
| Identify reasons why an opening credit balance might arise on a debtors control account. | Where a payment has been received, and later goods have been returned to the firm and hence a refund is now necessary. An error of some kind had been made involving the overpay Full payment was received and then a discount was granted – for example |
| Outline the benefits of maintaining a debtors control account. | They act as a check on the accuracy of the ledgers by comparing the balance of the control account with the total as per the schedule. They locate errors quickly records. They allow amounts owed by Debtors to be ascertained quickly |
| Explain why creditors control accounts are prepared. | They act as a check on the accuracy of the ledgers by comparing the balance of the control account with the total as per the schedule. They are useful when a firm needs to find credit purchases when preparing trading and profit accounts same as debtors |
| Explain what is meant by the opening debit balance in the creditors control account | The debit balance means that the company is owed money by at least one of the creditors |
| Give two reasons why such a balance might arise. | It can arise due to Moloney returning goods having already cleared the amount due to the supplier. It can arise as a result of a correction of a previous overcharge after Moloney had paid the balance due on the account. |
| Explain the importance of control accounts. | They act as a check on the accuracy of the ledgers by comparing the balance of the control account with the total as per the schedule. They help to locate errors quickly by narrowing the search to confined areas. Other answers same as debtor and cred |
| Explain how a contra entry may arise. | A contra entry can arise when a customer is also a supplier of the business instead of the customer paying us for goods supplied their balance is offset against the amount owing to them for goods or services supplied. |
| Explain one limitation of using control accounts | Control accounts do not identify which ledger account may contain an error. Some types of errors are not revealed by the control account such as errors of commission, errors of omission, compensating errors, and errors of original entry. |
| Explain what a contra item is | A contra item is an offset of a debtor against a creditor where the debtor and the creditor are the same person/business. |
| Which books of first entry are used in the production of debtors control accounts | Sales Sales returns General Journal Cash book - Receipts and payments |
Created by:
21JulianM
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