BKEEPING FORM THREE TOPICAL EXAMINATIONS
TOPIC : 2  CONTROL ACCOUNTS

TOPIC 2

CONTROL ACCOUNTS.

Control a/c is an account opened to check the accuracy of arithmetical entries in the general ledger.

It is maintained by large companies where there are many transactions.

ADVANTAGES OF CONTROL ACCOUNTS

  • To check the accuracy of arithmetical entries
  • To avoid fraud. i.e. entries are passed after analysis by the person.
  • Speed up the flow of information
  • Used to calculate the missing figure.

 

There are two main types of control a/c

(i)     Sales ledger control a/c (total debtors control a/c)

(ii)  Purchases ledger control a/c (total creditors a/c)

 

SALES LEDGER CONTROL ACCOUNT

 

  • This is an account prepared to determine the total debtors of the company.
  • Sales ledger has a debit balance.

 

 

FORMAT FOR SALES LEDGER CONTROL A/C

     DR                   CR

Balance b/d                               xx

Credit sales                               xx

Dishonored cheque                   xx

Bad debt recovered                   xx

Bill receivable dishounored      xx

Carriage charges                       xx

Fund overdue                            xx

Interest overdue                        xx

Noting charges                          xx

Transfer to/from sales ledger    xx

Purchases ledger                       xx

 

Balance b/d                            xx

Cash/bank                              xx

Discount allowed                   xx

Bad debts                               xx

Bills receivable                      xx

Returns inwards                     xx

Transfer to/from sales ledger  xx

Purchases ledger                     xx

Balance c/d                             xx

                                                  xx

                                                xx

 

The following information was extracted from the books of Hashim wholesalers

 

         Shs. 000

Jan. 2012 Debit balance in sales ledger a/c           38,500

      Credit balance in sales ledger a/c              1,800

During Jan. 2012

Credit sales       41,700

Return inwards        6,200

Receipts from debtors      39,100

Discount allowed        1,900

Debtors cheque returned unpaid      2,500

Bad debt written of           800

Interest charged on overdue a/c         500

Sales ledger control a/c debit balance transferred to sales ledger 5,000

 

Hashim Sales ledger control a/c

                DR     Sales ledger control account                                      CR

1.1.2012

Balance b/d                                   38,500

Credit sales                                   41,700

Dishonoured cheque                       2,500

Interest overdue                                 500

 

 

 

1.1.2012                         shs. 000

Balance b/d                     1,800

Return inwards                6,200

Cash/Bank                      93,100

Discount allowed              1,900

Bad debts                              800

Sett off                               5,000

31.Dec Balance c/d           28,400

                                                        83,200

1/02/ balance b/d                             28,400

                                           83,200

 

 PURCHASES LEDGER CONTROL ACCOUNT

This is the account prepared to determine the total creditors of the company. Purchases ledger always has credit balance.

                        DR                                   Purchases ledger control a/c                                  CR

Balance b/x                                 xx

Cash/Bank                                   xx

Discount received                        xx

Return outwards                          xx

Bill payable                                 xx

Transfer to/from                          xx

Purchases ledger to                     xx

Sales ledger                                 xx

Balance c/d                                  xx

Balance b/d                                xx

Credit purchases                        xx

Carriage charges                        xx

Dishonored cheques                   xx

Noting charges                           xx

Bill dishonored                           xx

Refund overdue                          xx

Transfer to/from purchases

Ledger                                        xx

Sales ledger                                xx

                                                    xxx

                                                   xxx

Balance b/d                     xxx      

 

Example:

The following information is available from the books of Charles store L.t.d. 2013

1Jan. Debit balance in purchases ledger control a/c 420

 Credit balance in purchases ledger control a/c 13,870

During January;

Credit purchases     12,540

Return outwards       1,360

Payments to creditors     10,970

Discount received          210

Bills of exchange accepted         1,500

Transfer to sales ledger        1,260  

 

                         DR          Charles store Ltd. Purchases ledger control a/c                  CR

1.1.2013 Balance b/d                420

Return outwards                       1360

Cash/Bank                              10,790

Discount received                        210

Bills of exchange                      1,500

Sett off                                      1,260

31 Dec 2013 Balance c/d        10,870                            

Balance b/d             13,870

Credit purchases     12,540  

                                                 26,410

                                 26,410

 

ACCOUNTING FOR INCOMPLETE RECORDS. (SINGLE ENTRY)

Incomplete record or single entry is a system of boo keeping where double entry is not followed i.e. only personals accounts are maintained.

 

Therefore, some information is provided while the missing information is to be found. The missing information is obtained by applying the basic principles of double entry.

  • Single entry is common to:-
  • Shopkeepers.
  • Market stall owners
  • Retailers.

This may be because of:-

  • Poor knowledge of double entry record
  • Failure to record every transaction
  • In small business maintain only a cash book.     

 

DISADVANTAGES OF SINGLE ENTRY ACCOUNTING AS INCOMPLETE RECORDS.

(i)     The whole exercise of trial balance will yield incorrect figures

(ii)  It is difficult to ascertain the true value of assets.        

Calculating of Profit from Single Entry system.

Profit can be obtained by finding the difference between capital at the end and capital at start.    

Example:

John started a business with capital 100,000 at the end of year capital was 150,000/=

Therefore, profit = End capita – start capital

   = 150,000 – 100,000

   = 50,000/=

Capital can be calculated by using statement of affairs or balance sheet.

From AC. Eq.  Assets = Capital + Liabilities

Capital = Assets – Liabilities.

Balance sheet

Assets:

Fixed assets                           xx

Current assets                        xx

Capital                           ?

 

Liabilities                      xx

Total assets                            xx

                                       xx

 

FORMAT FOR PRESENTING PROFIT OR LOSS UNDER SINGLE ENTRY SYSTEM.

Capital at close   xx

Add: Drawing (if any)    xx

Total capital at close   xx

Capital at start    xx

Add: additional capital (if any) xx

Total capital at start   (xx)

Net profit or loss               xx

 

Logic of adding drawing or addition capital assumes that we have capital control account as follows.

 

                                                                                               DR    Capital control a/c                                CR

Drawing                                xx

Balance c/d                           xx

                                              xx

Balance b/d              xx

Cash/Bank                xx

                                  xx

                                            xxx

Balance b/d              xxx

FORMS OF INCOMPLETE RECORDS

(i)     Absence of any record whatever.

(ii)  Partial records being maintained

(iii) Falsification, distraction or misplacement of records either intentionally.

(iv) Single entry accounting where merely a long sheet or diary is kept.

Example:
H. Chitayi provides information as to his assets and liabilities certain date.

                                    A 31 Dec. 1995

Assets:  Motor van   shs. 10,000

  Fixture   shs. 7,000

  Stock    shs. 8,500

  Bank   shs. 11,000

  Cash    shs. 1,000

  Debtors   shs.  9,500

 

Liabilities: Creditors   shs. 2,000

  Loan from J. Nerende shs. 6,000

 

At 31 Dec. 1996 after depreciation.

 Motor van    8,000

 Fixtures    6,300

 Stock    9,900

 Debtors   12400

 Bank    17000

 Cash    2,000

 

Creditors:    3,000

  Loan from Nerende 4,000

  Drawing  9,000

 

 Required to:-

(i)     Calculate capital on 31 Dec. 1995

(ii)  Profit at 31Dec. 1996

 

Solution:

                                   Balance sheet as at 31 Dec. 1995

Assets: Motor van               10,000

             Fixture                      7,000

             Stock                        8,500

             Bank                       11,000

             Cash                          1,000

             Debtor                       9,500

Capital                            39,000

 

Liabilities

Loan from J.                     6,000

Creditors                           2,000

                                             47,000

                                        47,000

 

                              Balance sheet on Dec 1996.

Assets:

Motor van                                10,000

Fixture                                       6,300

Stock                                         9,900

 Debtors                                   12,400

Bank                                         17,000

Cash                                            2,000

Capital                        39,000

Net profit                         600

Less: Drawing                 (900)

 

Liabilities:

Loan from Nerende         4,000

Creditors                         3,000

                                                   55,600

                                      55,600                    

 

Technique which assists include:-

a)      Past record / trend. – This will help to establish certain relationship and the general direction of business.

b)     Ratio analysis – This give the relationship between one items to another.     100 =

 

c)      Balance sheet equation i.e. Asset = owners equity + liabilities. From this equation any missing figure can be calculated.

d)     Trading account format:- Gross profit = Sales – Cost of goods sold.

e)      Use of control a/c

It help to get the value of purchases, sales, cash paid to supplier cash received from customers.

These are used when one figure is missing in those two a/c.

 i.e Sales ledger control a/c

    Purchases ledger control a/c

               Floating capital.

 

Example:

 J. Banda own a store, his records are incomplete and you have been called in to prepare his accounts.

You ascertain the following.

 

January 1. 2001

December 31. 2001

Stock

Creditors

Motor van

Debtors

Rates prepaid

Cash at Bank

21,000

9,600

12,000

13,000

800

9,000

22,400

10,000

10,000

10,400

960

23,440

 

Drawings during the year were shs.1200/= per week and legacy of sh. 4,000/= received on March 2001 had been paid into Bank.

Required:-

a)      Draw up statement of Affairs showing

  • Capital at January 1st 2001
  • Capital at December 31st 2001.

b)     Compute a statement showing the profit and loss for the year ended December 31st 2001.

Example:

The following information relate to Mr. Kazimoto, a trader as at 30th July, 2004

Sale     340,000

Cost of sale    75% of sales

Opening stock    90,000

Net profit    20% of sales

Closing stock    20% of cost of goods sold

 Required to calculate:-

a)      Purchase

b)     Cost of goods sold

c)      Closing stock

d)     Net profit

e)      Expenses

f)       Gross profit

 

Solution:

 

Cost of sales   340,000 = 255,000

 

Cost of goods sold = Opening + Purchase – Closing 

   255,000 = 90,000 + Purchases     255,000

 

    255,000 = 90,000 + P + 51,000

    255,000 = 90,000 – 51,000 = P

 

Purchases = 114

 

Closing stock =    255,000 = 51,000

 

Net profit =     340,000 = 68,000

 

Gross profit = Sales – Cost of goods sold

 340,000 – 255,000 = 85,000

 

Net profit = Gross profit – Expenses

 

Net profit = 85,000 – Expenses

 

68,00 – 85,000 =

 

Expenses = 17,000

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