Chapter 11 - contol accounts & errors

Question 1

What is a contra entry?

Answer 1

Where a customer is also a supplier → instead of owing each other money, the balances cancel to give a ‘contra’ amount.

Question 2

Where will the following be posted in credits or debits for recievables control accounts?

• Credit sales
• Caah recieved
• Dishourned cheques
• Irrecoverable debts
• Refunds on credit
• Returns
• Discounnt allowed
• Contra
• Credit notes

Answer 2

Question 3

Where will the following be posted in credits or debits for payabless control accounts?

• Credit purchases
• Cash
• Refunds on debit
• Discounnt recieved
• Contra
• Returns
• credit notes

Answer 3

Question 4

What reasonsmay a recievables control account show a credit balance?

Answer 4

• The customer has overpaid.
• Credit notes have been issued when the goods have already been paid for.
• The payment is recieved in advance of raising invoices.

Question 5

What is conrtol account reconcilliation?

Answer 5

Two seperate records of recievables are maintained:

• The recievables control account
• The recievables ledger _{<em>(not part of accounting system)</em>}

They should balance at all times, to ensure this is the case and identify any errors reconsiliation is performed.

Question 6

Understand how to format control reconciliation. An example is provided in the answers.

Answer 6

Work through each error consinering whether it effects:

• The control account
• The individual memo accounts
• Both

Question 7

Answer 7

2. £210 should have been credited, instead it was debited

• £420 needs to be credited to cancel this
• (£210 to cancel incorrect debit)
• (£210 to add to credit)

Question 8

1. What is bank reconciliation?
2. How are bank statments differnet?

Answer 8

1. A statment agreeing the balance on the bank statment to the balance on the cash account _{(making sure they equal)}
2. The debits and credits are reversed in the bank statment as the bank is recording trasactions from its point of view

• Bank credit → the money we have / the bank has liability to us
• Bank deit → we owe money / the bank has an asset as we are a payable.

Question 9

What are the 3 main reasons for differneces between the bank statment and cash book?

Answer 9

1. Unrecorded items → arise in bank statment before they are recorded in cash book
2. Timing differneces → Items recorded in the cash book that arenot yet recorded in the bank statment
3. Errors → mistakesmade whilst recording items

Question 10

why may unrecorded items arise?

Answer 10

• Interest
• Bank charges
• Dishonour cheques
• standing orders and direct debits

Question 11

What are the two types of timing differneces that can arise?

Answer 11

1. Outstanding cheques → cheques sent to supplier that have not yet been cleared
2. Outstanding lodgments → chques recieves by a business that have not yet cleared by the bank

Question 12

What are the two catorgories that error can fall into?

Answer 12

1. Errors where the trial balance still balances
2. Errors where the trail balance does not balance

Question 13

How is a proforma bank reconcilliation set up?

Answer 13

Question 14

Answer 14

Question 15

Answer 15

Question 16

The following errors don’t effect the trial balance end. (credit still = debit) define….

1. error of omission?
2. error of commission?
3. errror of principle?
4. compensating error
5. transposition error
6. reversal of entries?
7. over/under casts in day book
8. Pages missing from day book

Answer 16

1. A transcation omitted from accounting records (no Dr or Cr recorded.
2. A transaction recorded in the wrong financial statment → still same total _{(e.g motor expense in stationary expense)}
3. A transaction recorded incorrectly under the wrong subheading but still in correct debit or credit side.
4. Two different errors which have cancelled each other out
5. The corect double entry has been made but 2 digits are the wrong way round (_{Dr 267 recorded as Dr 276)}
6. The correct amount posted but the credit and deboit reversed

Question 17

Answer 17

Consider the double entry….

• They did do
• They should have done
• The corrections

Question 18

What errors can be made which do effect the trial balnce end ( cebit and credit do not balance)

(6 marks)

Answer 18

• Single sided entry
• Debit and credit made at different values
• Two entries have been made on the same side
• An incorrect addition
• Opening balance has not been brought down
• Extraction error → the balance in the trial balance is different from the balance in the relevent accounts

Question 19

If there is a difference on the trial balance bewteen debit and credit what is done?

Answer 19

A suspense account is used to make debits equal credits

Question 20

Answer 20