Question

RECEIVABLES CONTROL ACCOUNT RECONCILIATION

Hercules Ltd. sells bathroom fittings on credit to most of its customers. In order to control its debt collection system, the company maintains a trade receivables ledger control account. In preparing the accounts for the year to 31 July 2017 the accountant discovers that the total of all the personal accounts in the trade receivables’ ledger amounts to total £ 12,802 whereas the control account balance discloses a balance of £ 12,550.

Upon investigation the following errors were discovered:

• Sales for the week ending 27 March 2017 amounting to £ 850 had been omitted from the control account
• An account balance of £ 300 had not been included in the list of balances.
• Cash received of £ 750 had been entered in a personal account as £ 570.
• Discounts allowed totaling £ 100 had not been entered in the control account.
• A personal account balance had been undercast by £ 200
• A contra item of £ 400 with the trade payables ledger had not been entered in the control account.
• A bad debt of £ 500 had not been entered in the control account
• Cash received of £ 250 had been debited the personal account
• Discounts received of £ 50 had been debited to a customer’s ledger account
• Returns inwards valued at £ 200 had not been included in the control account
• Cash received of £ 80 had been credited to a personal account as £ 8
• A cheque for £ 300 received from a customer had been dishonored by the bank, but no adjustment had been made in the control account.

Required:

1. Prepare a corrected trade receivables control account, bringing down the amended balance at 31 July 2017
2. Prepare a statement showing the adjustments that are necessary to the list of personal account balances so that it reconciles with the amended control account

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Hercules Ltd.
Reconciliation statement	Amount	Amount
Balance in control account on 31st July 2017		12,550.00
Add:
Sales for the week ending 27th March wrongly omitted	850.00
A cheque dishonored by the bank but no adjustment made	300.00	1,150.00
Less:
Discount allowed not entered	100.00
Returned inwards not entered	200.00
A contra item with the trade payables not entered	400.00
Bad debt not entered	500.00	1,200.00
Corrected Balance of control account as on 31st July 2017		12,500.00
	Amount	Amount
Balance in personal account on 31st July 2017		12,802.00
Add:
Account balance not included	300.00
Personal account balance under cast	200.00	500.00
Less:
Cash received entered wrongly (750-570)	180.00
Cash received wrongly debited (250+250)	500.00
Discount received wrongly debited	50.00
Cash received wrongly credited (80-8)	72.00	802.00
Corrected Balance of personal account as on 31st July 2017		12,500.00
Difference between control account and personal account on 31st July 2017		-

Answer 2

1.      The sales ledger control account balance of ‘It shall be well Ltd’ was found through an internal audit to be one-half of the sum of the individual debtors balances from the sales ledger. During the audit test, the following were revealed:

a.       A credit balance of GHC 763 from the sales ledger was not included in the summed sales ledger debit balances of GHC 18,864 for the period ended.

b.      An invoice of GHC 7, 667 was treated as a receipt from a customer in the control account.

c.       The sales ledger included a debit balance of GHC 307 for B. ED MGT Ltd and the purchase ledger includes a credit balance of GHC407 relating to the same business. It was agreed that only the net amount should be settled.

d.      The company keeps a combined account for discount allowed and discount received which at the end of the period revealed a debit balance of GHC 1,255. An investigation revealed that, the discount received for the period was GHC790. The only entry relating to the discount was the entries in the combined discount account

e.       An allowance of GHC 700 against damaged goods had been omitted from the sales ledger. This was however mistakenly treated in the total debtors ledger account as credit sales.

f.       A debit note of GHC 770 issued to a customer for undercharged goods was treated as a debit note received from the customer in the books.

g.      The sales ledger control account balance at the beginning of the period was brought down as GHC 5,509 instead of GHC 5,590

h.      The book keeper has been instructed to write off GHC 1,550 as bad debt from a customer’s account and reduce the provision for doubtful debts by GHC 1,650. By mistake however, he had written off GHC 1,650 as bad debt in the books and reduce the provision for doubtful debts by GHC 1,550

i.        An invoice of GHC5,155 was recorded in the sales day book as GHC 1, 555

j.        A cheque refund of GHC 500 to a customer was dishonoured. This was not recorded in the control account.

k.      Cheque receipt from a customer for GHC 677 was treated as a sales invoice at an amount of GHC  667 in the control account.

You are required to record the above information in the sales ledger control account and attempt to reconcile the sales ledger control account with the sales ledger balances.