1989 (paper 1 - N0. 3) Control accounts

The ABC Company maintains control accounts in respect of both the sales ledger and the purchases ledger within their general ledger. The draft trial balance as at 31 December 1988 showed the following balances:

$
Sales ledger control account / 195 764
Purchases ledger control account / 102 815
Suspense account (credit balance) / 8 053

You have been given the following information:

(A)The bank columns in the cash book for December 1988 are shown below:

1988 / $ / 1988 / Cheque No / $
Dec .1 / Balance b/d / 163 / Dec.1 / Petty cash / 60213 / 218
4 / Sema Ltd / 620 / 2 / Bank charges / - / 21
8 / J. York / 472 / (November)
8 / Victor Ltd / 1 316 / 7 / L. Jones / 60214 / 127
15 / B. Wright / 284 / 9 / Blakes Ltd / 60215 / 284
15 / Knowles Ltd / 532 / 12 / Textile Ltd / 60216 / 675
15 / BGT Ltd / 2 063 / 15 / Grand Hotel / 60217 / 1 095
24 / H.K Ltd / 700 / 20 / Wages / 60218 / 3 900
31 / Chan & Co / 410 / 26 / China Light / 60219 / 278
31 / Balance c/d / 222 / 30 / Handbag Ltd / 60220 / 184
6 782 / 6 782

(B)The bank statement received in early January 1989 is shown below:

Account: ABC Company Account #293-159117

Description / Debit / Credit / Balance
1988 / $ / $ / $
Dec. 1 / Balance / 480
1 / Credit / 751 / 1 231
1 / 60213 / 218 / 1 013
2 / 60211 / 269 / 744
4 / 60212 / 472 / 272
4 / Credit / 620 / 892
8 / Credit / 1 788 / 2 680
9 / 60208 / 348 / 2 332
9 / Interest / 30 / 2 302
15 / Credit / 2 879 / 5 181
16 / 60217 / 1 095 / 4 086
20 / 60218 / 3 900 / 186
21 / 14873 / 10 460 / 10 274 O/D
21 / 60214 / 217 / 10 491 O/D
21 / Adjustment / 10 460 / 31 O/D
24 / Credit / 670 / 639
28 / Charges / 50 / 589
31 / Standing order / 540 / 49

(C)Additional information

(i)Totals extracted from the sales ledger and the purchases ledger were $194 260 and $109 600 respectively.

(ii)The bank overdraft of $222 has been included in the trial balance as a debit balance.

(iii)On 24 December 1988, H.K .Ltd paid its account of $700 by cheque and a discount of $30 was allowed. The gross amount was wrongly recorded in the cash bank.

(iv)Cheque No. 60214 paid to L. Jones for goods supplied was wrongly recorded in the cash book as $127 instead of $217.

(v)A credit entry of $200 was made in R. Smith’s account in the sales ledger. However it was found that no such cheque had been received.

(vi)The standing order of $540 in respect of the hire purchase of a copying machine included interest charges of $40. The hire purchase creditor in the purchases ledger was recorded at the cash price of the copying machine.

(vii)A debt balance o 4240 in the sales ledger has been extracted as a credit balance.

(viii)The sales ledger included a debt balance of $1200 for Wong & Co, and the purchases ledger included a balance of $900 standing to the credit of Wong & Co’s account. Only the net amount will be eventually paid or received.

(ix)A balance of $824 owed by Brown has been written off in bad debts as irrecoverable but no entry has been made in the control account.

(x)An invoice for $648 has been entered in the purchase day book as $846.

(xi)The total of $6785 in the purchases day book for December 1988 has been omitted from the control, although posted correctly in the purchases account.

You are required to:

(a)prepare the journal entries to rectify any errors and, if no journal entry is necessary, state how the errors should be a rectified. (15 marks)

(b)prepare a bank reconciliation statement as at 31 December 1988, showing the adjusted cash book balance; and (8 marks)

(c)prepare the statements showing the corrections to be made in the balances extracted from the sales ledger and the purchases ledger. (7 marks)