Lecture 14: Control Accounts

Question 1:

Receivables Ledger Control Account

Bal. b/d (opening bal.)

Bal. c/d (closing bal.)

Sales on credit Sales returns Cash refunds

Dr Receivables Dr Sales returns Dr Receivables
Cr Sales Cr Receivables Cr Bank

Cash from credit customers Irrecoverable debts Contras against payables

Dr Bank Dr Receivable expenses Dr Payables
Cr Receivables Cr Receivables Cr Receivables

FFM, FFA, FMA, MA2 Kim Mara | 1

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a. Interest charged on overdue accounts

If a customer is late in settling their account, then an entity may decide to charge them interest.

This will increase the amount they owe and will be shown as interest receivable in the statement of
profit or loss.

Interest charged on overdue accounts

Dr Receivables

Cr Interest receivable (SPL)

b. Contras against/net-off/off-set/cancel

The situation may arise where a customer is also a supplier.

Instead of both owing each other money, it can agree that a contra be made of the balances
i.e., they are cancelled.

This will reduce both receivables and payables.

c. Cash refunds to customers

If a customer pays too much to settle an invoice, or pays an invoice twice, the business will owe the
excess to the customer. The monies will return back or refund to the customer.

FFM, FFA, FMA, MA2 Kim Mara | 2

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Question 2:

Receivables Ledger Control Account

Bal. b/d (opening bal.)

Bal. c/d (closing bal.)

Sales on credit Sales returns Cash refunds

Dr Receivables Dr Sales returns Dr Receivables
Cr Sales Cr Receivables Cr Bank

Cash from credit customers Irrecoverable debts Contras against payables

Dr Bank Dr Receivable expenses Dr Payables
Cr Receivables Cr Receivables Cr Receivables

Question 3:

FFM, FFA, FMA, MA2 Kim Mara | 3

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Question 4:

What is the figure for sales on credit during 20X5?

Sales on credit Sales returns Cash refunds

Dr Receivables Dr Sales returns Dr Receivables
Cr Sales Cr Receivables Cr Bank

Cash from credit customers Irrecoverable debts Contras against payables

Dr Bank Dr Receivable expenses Dr Payables
Cr Receivables Cr Receivables Cr Receivables

Question 5:

Credit purchases Payments made to suppliers

Dr Purchases $70,100 Dr Payables
Cr Payables $70,100 Cr Bank
Cash discounts received
Dr Payables
Cr Discounts received

FFM, FFA, FMA, MA2 Kim Mara | 4

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Question 6:

Payables Ledger Control Account

Bal. b/d (opening bal.)

Bal. c/d (closing bal.)

Credit Purchases (Buyer is Sales tax registered)

Dr Purchases with net value

Dr Input sales tax

Cr Trade payables

Total debts owed to suppliers = $197,790

Credit purchases Payments made to suppliers
Dr Purchases $197,790 Dr Payables
Cr Payables $197,790 Cr Bank
Cash discounts received
Dr Payables
Cr Cash discounts received

FFM, FFA, FMA, MA2 Kim Mara | 5

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Discounts

Settlement Discounts
Seller assumes that customer WILL pay promptly
If past evidence or other information indicate that yes, a customer will pay promptly, then
the seller should recognize the revenue net of settlement discount at the time of sale.

For example:
You make a sale of $1,000 to customer John on credit for 30 days.

You offer settlement discount of 3% if John pays within 10 days.

From the past experience with John, you expect him to pay within a week because John
has always paid you within a week.

The seller must first assess the probability of customer paying promptly at the time of sale.
If the answer is YES,
Dr Receivables $970 Dr Receivables
Cr Sales $970 Cr Sales

When John pays you within 10 days,

Dr Bank $970 Dr Bank
Cr Receivables $970 Cr Receivables

However, if John pays you after 10 days, then he needs to pay the full $1,000,
Dr Bank $1,000 Dr Bank
Cr Receivables $970 Cr Receivables
Cr Sale $30 Cr Sale

FFM, FFA, FMA, MA2 Kim Mara | 6

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Question 7:

Question 8:

FFM, FFA, FMA, MA2 Kim Mara | 7

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Question 9:

FFM, FFA, FMA, MA2 Kim Mara | 8

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