Control Accounts Lesson 2

Revision Bal b/d Fill in all possible entries and name the account. Bal c/d

SLCA SLCA Bal b/d Bank Sales Discounts Allowed Returned cheques Sales Returns Irrecoverable debts Contra Bal c/d

VAT Control Account Fill in all possible entries VAT Details £

VAT Control Account VAT Details £ Purchases Sales Sales Returns Purchase returns Cash purchases Cash sales Other expenses Other cash income Bank Other income

The Accounting Equation?

The Accounting Equation Assets – Liabilities = Capital

The Accounting Equation Exercises

Aims of the Session The journal and maintaining it. Offsets or contras. Irrecoverable debts.

The Journal Records non-standard transactions, such as: Opening entries Irrecoverable debts written off Payroll Correction of errors

The Journal Is a book of prime entry – NOT part of the double entry system. Eliminates the need to remember why non-regular entries were made. Reduces the risk of fraud. Reduced the risk of errors as it lists the transactions to be entered into the double entry system. Ensures entries can be traced back to an authorised document.

Capital Account (in General Ledger) Journal Extract Date Details Reference Debit Credit 20 Jun 20X6 Bank Capital Opening capital introduced to business CB (cash book) GL (general ledger) 20,000 This is simply a note-book style entry and now needs to be put into the double entry system. General Ledger Extract Dr Cash Book (CB) Cr 2xx6 Details Cash Bank 20x6 20 Jun Capital 20,000 Dr Capital Account (in General Ledger) Cr 2xx6 Details Cash Bank 20x6 20 Jun 20,000

Exercises Prepare the journal entry for the following opening entries. Started the business on 1 Feb 20X6 with £100 cash, bank £5000, inventory £1000, machinery £2,500, trade payables £850. Prepare the journal entry for the following irrecoverable debt. J Smith £345 - irrecoverable debt 1 Feb 20x6

Solution Assets – liabilities = capital Date Details Reference Debit Credit 20 Feb 20X6 Cash Bank Inventory Machinery PLCA Capital * Opening entries to business CB GL 100 5,000 1,000 2,500 850 7,750 Assets – liabilities = capital (100+5000+1000+2500 – 850 = 7750) The capital is the balancing figure

Solution Date Details Reference Debit Credit 20 Feb 20X6 SLCA Irrecoverable debts GL 345

Now record these as entries in the General Ledger

Offsets/Contras When a business buys and sells from another business. Saves making two payments.

Patel Ltd has the following accounts in the purchases ledger and sales ledger. A Smith Balance b/d £200 Purchases Ledger A Smith Balance b/d £300 A Smith owes Patel Ltd £200 (sales), and Patel Ltd owes A Smith £300 (purchases). Rather than making 2 entries and 2 bank payments the payments can be offset in Patel Ltd’s books: Debit the purchase ledger of A Smith £200 Credit the sales ledger A Smith £200

Contra/set-off entries need to be properly documented and authorised. Patel Ltd’s accounts now appear like so: Sales Ledger A Smith Balance b/d £200 Purchases Ledger A Smith Balance b/d £300 Contra Sales £200 Contra Purchases £200 Balance c/d £100 £300 £300 Balance b/d £100 Entries now need to be made in the control accounts as the double entry. Contra/set-off entries need to be properly documented and authorised.

Exercises Mrs Moggins owes Mrs Miggins £400, Mrs Miggins owes Mrs Moggins £350. Bagstock Ltd owes Kenwigs £50, Kenwigs owes Bagstock Ltd £60. Mr Bond owes £780 to Chiffre Enterprises, Chiffre Enterprises owes Mr Bond £700. Krook & Co owes £678 to Marley Ltd, Marley Ltd owes £300 to Krook & Co. Draw up the entries in the subsidiary and control accounts, the first name is the business whose account you are working on. Answers in course folder.

Irrecoverable Debts Using your previous knowledge how are irrecoverable dealt with? Debit: Irrecoverable debts (expense) & VAT Credit: SLCA Requires journal entries and proper authorisation.

Irrecoverable Debt Exercises Write up the journal entries for the following irrecoverable debts: Malvolio Ltd goes bankrupt owing £420 incl VAT. Caius Coriolanus goes into liquidation owing £840 ex VAT. The Prince of Morocco dies owing £2,592 incl VAT. Dr Irrecoverable debt & VAT: 350 & 70 Cr: SLCA £420 Dr Irrecoverable debt & VAT: 840 & 168 Cr: SLCA £1008 Dr Irrecoverable debt & VAT: 2160 & 432 Cr: SLCA £2,592

Questions?