Control account
BELOW ARE some questions. The recommended answer is presented for each. Attempt each and then match you answers with mine. Pay attention to explanation and principles applied.
QUESTION
Maureen Green is a trader. She does not maintain a full double-entry system. She keeps books of prime entry from which control accounts are prepared. The information below relates to the year ended April 30, 2015: You are required to: a. Calculate total sales for the year ended April 30, 2015. (Show all workings.) [R>2]
b. Explain TWO ways in which control accounts can be used by Maureen Green in her business.
c. Suggest TWO limitations to the usefulness of control accounts in Maureen Green’s approach to record keeping.
REASONING
1. Receipts from debtors is an item of control account. It is related to debtors. Cash sales is not an item of control account.
2. Credit sales plus cash sales is total sales.
SOLUTION
a) Total debtors account Cash sales + Credit sales =Total sales $36,000 + 308,000 = $344,000 b) i. It is used to provide figures for debtors and creditors, which helps to prepare the balance sheet.
ii. It is easy to assess the debts that are receivable and payable.
c) i. Since Maureen has no double-entry records, errors in her accounts cannot be located by the use of control account.
ii. Individual debtors and creditors balance cannot be checked.
MULTIPLE CHOICE QUESTIONS
1. What is a cash book?
2. Which source document is used to make an entry in the purchases returns journal?
A. Invoice issued by the supplier.
B. Invoice issued by the business.
C. Credit note issued by the supplier.
D. Credit note issued by the business.
3. Bill returns goods bought on credit from Tom. Which ledger account entries records this in Tom’s books?
Debit Credit A Sales returns Bill B Purchases returns Bill C Bill Sales returns
D Bill Sales returns 4. Which group contains ONLY capital expenditure? A. Computers, repairs to computers and machinery. B. Furniture, repairs to furniture and buildings. C. Machinery, motor expenses and computers. D. Furniture, computers, and machinery. 5. A business fails to provide depreciation when preparing its final accounts. What is the effect of the omission? A. Resale value of assets is overstated. B. Profit is overstated.
C. Profit is understated.
D. Resale value of assets is understated. 6. A trader rents premises.
How is the rent accrued at the end of the financial year shown?
A. Debit balance brought down on the rent account. B. Credit balance brought down on the rent account. C. Long-term liability in the balance sheet. D. Current asset in the balance sheet.
RECOMMENDED MULTIPLE CHOICE RESPONSE
This is all we have time for this week. Visit again next week when the presentations will continue. Remember, IF IT IS TO BE, IT IS UP TO ME (10 simple two-letter words). Roxanne Wright is an independent contributor. Send comments to kerry-ann.hepburn@ gleanerjm.com.