john123456AB
Nov 7, 2014, 09:46 AM
Carol operates a manual book-keeping system and prepares accounts to 30 September each year. All of her sales are cash sales but she buys goods from her suppliers on credit terms. She maintains a payables control account and this account forms part of her double-entry system, so that the balance on the control account is included in her trial balance. The personal accounts of individual suppliers are held in the payables ledger as memorandum records only.
Carol's trial balance at 30 September 2008 showed that credit balances exceeded debit balances by £1,460. On the same date, the credit balance on the payables control account was £7,320 but a list of balances extracted from the payables ledger totalled only £5,494.
Carol placed the trial balance difference into a suspense account and proceeded to prepare draft accounts for the year to 30 September 2008. The trial balance difference was treated as an expense in these draft accounts, which showed a profit for the year of £18,450. Carol then searched through her accounting records and located the following errors:
1. A batch of purchase invoices totalling £653 had been omitted from the accounting records entirely.
2. Bank charges of £12 had been recorded in the cashbook but nowhere else.
3. A purchase return of £275 had been recorded in the purchase daybook and in the supplier's personal account as if it were a purchase invoice.
4. Carol's drawings of £500 for the month of September 2008 had been recorded correctly in the cashbook but then debited to the wages and salaries account.
5. A debit balance of £370 on a supplier's personal account had been shown as a credit balance on the list of balances extracted from the payables ledger.
6. The purchase daybook had been overcast by £1,000.
7. Discounts received totalling £742 had been recorded correctly in suppliers' personal accounts but then entered as £724 in both the discounts received account and the payables control account. Furthermore, the entry in the payables control account had been made on the wrong side of that account.
8. The credit side of a supplier's personal account in the payables ledger had been undercast by £100.
Requirements
(a) Write journal entries as necessary to correct the book-keeping errors which are listed above. (Narratives are not required).
(b) Show that these journal entries will clear the balance on the suspense account.
(c) Write up the payables control account and reconcile the balance on this account to the total of the list of balances extracted from the payables ledger. 6
(d) Calculate Carol's corrected net profit for the year to 30 September 2008.
Carol's trial balance at 30 September 2008 showed that credit balances exceeded debit balances by £1,460. On the same date, the credit balance on the payables control account was £7,320 but a list of balances extracted from the payables ledger totalled only £5,494.
Carol placed the trial balance difference into a suspense account and proceeded to prepare draft accounts for the year to 30 September 2008. The trial balance difference was treated as an expense in these draft accounts, which showed a profit for the year of £18,450. Carol then searched through her accounting records and located the following errors:
1. A batch of purchase invoices totalling £653 had been omitted from the accounting records entirely.
2. Bank charges of £12 had been recorded in the cashbook but nowhere else.
3. A purchase return of £275 had been recorded in the purchase daybook and in the supplier's personal account as if it were a purchase invoice.
4. Carol's drawings of £500 for the month of September 2008 had been recorded correctly in the cashbook but then debited to the wages and salaries account.
5. A debit balance of £370 on a supplier's personal account had been shown as a credit balance on the list of balances extracted from the payables ledger.
6. The purchase daybook had been overcast by £1,000.
7. Discounts received totalling £742 had been recorded correctly in suppliers' personal accounts but then entered as £724 in both the discounts received account and the payables control account. Furthermore, the entry in the payables control account had been made on the wrong side of that account.
8. The credit side of a supplier's personal account in the payables ledger had been undercast by £100.
Requirements
(a) Write journal entries as necessary to correct the book-keeping errors which are listed above. (Narratives are not required).
(b) Show that these journal entries will clear the balance on the suspense account.
(c) Write up the payables control account and reconcile the balance on this account to the total of the list of balances extracted from the payables ledger. 6
(d) Calculate Carol's corrected net profit for the year to 30 September 2008.