CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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CONTROLLING THE BOOKKEEPING SYSTEM
REVISION QUESTIONS C2
310
(c) From the following information, draw up a sales ledger control account for the month
of February 20X7 by entering the missing fi gures in the control account below.
$
Owing by customers at 1 February 20X7 103,670
Owing to customers at 1 February 20X7 1,400
Sales, excluding sales tax 175,860
Sales tax on sales 10,350
Returns inwards, including sales tax 9,500
Sales tax on returns inwards 1,300
Refunds to customers 800
Cash sales, including sales tax 12,950
Cheques received from receivables 126,750
Discounts allowed to customers 1,150
Contra entries to purchase ledger 750
Bad debts written off 2,300
Dishonoured cheques from receivables 1,580
In addition, BH has been notifi ed that he will receive a dividend of 10p in the pound from
a previously written-off bad debt of $3,000. The amount has not yet been received.
On 28 February 20X7, an allowance for receivables is to be made of 2 per cent of the
net balance that existed at 1 February 20X7.
Amounts owing to customers at 28 February 20X7 amounted to $840.
BH – Sales ledger control account
$ $
Question 5
The following balances appeared in your company’s sales ledger at 1 April 20X8:
$
Receivable P Debit 5,000
Receivable Q Debit 1,200
Receivable R Debit 1,045
Receivable S Debit 8,750
Receivable T Credit 140
Receivable U Credit 900
Receivable V Debit 400
CONTROLLING THE BOOKKEEPING SYSTEM
311
FUNDAMENTALS OF FINANCIAL ACCOUNTING
During April 20X8, the following transactions occurred:
Receivable $
Sales P 4,700
Q 1,175
R 3,520
U 9,400
Returns P 1,400
R 800
S 750
Receipts P 9,740
Q Balance at 1 April 20X8 less 5 per cent cash
discount (cheque dishonoured later in the month) R 1,520
S 7,500
Refunds T Balance at 1 April 20X8
The balance on V’s account is written off as bad. The remaining balance on S’s account is
offset against his balance in the purchase ledger. An allowance for receivables of 5 per cent
of closing balances is to be made.
Requirements
(a) Complete the missing fi gures in the following table in order to calculate the total of
receivable balances at 30 April 20X8. Where a fi gure is to be deducted from the bal-
ance, show it in brackets. If no fi gure is required in a particular box, leave it blank.
P ($) Q ($) R ($) S ($) T ($) U ($) V ($) Total ($)
Balance 1/4/X8
Credit sales
Returns
Receipts
Discount allowed
Dishonoured cheque
Refund
Bad debt w/off
Set off
Balance 30/4/X8
CONTROLLING THE BOOKKEEPING SYSTEM
REVISION QUESTIONS C2
312
(b) Complete the missing fi gures in the sales ledger control account given below.
Sales ledger control account
$ $
Balance b/f Balance b/f
Sales Receipts
Dishonoured cheque Returns
Refund Discounts allowed
Balance c/f Bad debts written off
Set off/contra
Balance c/f
Balance b/f Balance b/f
(c) Insert the missing word in this sentence:
(i) The principle purpose of a control account is to check on the accuracy of the ____
____ accounts in the relevant ledger that it controls.
(ii) It is called a ‘ total account ’ because it contains the total of all transactions posted to
the ________ accounts, taken from summary daybooks, cash books and so on.
Question 6
After calculating net profi t for the year ended 31 March 20X8, WL has the following trial
balance:
Debit ($) Credit ($)
Land and buildings – cost 10,000
Land and buildings – acc. depreciation at 31 March 20X8 2,000
Plant – cost 12,000
Plant – acc. depreciation at 31 March 20X8 3,000
Inventories 2,500
Receivables 1,500
Bank 8,250
Payables 1,700
Rent prepaid 400
Wages accrued 300
Capital account 19,400
P r o fi t for the year ended 31 March 20X8 9,750
34,650 36,150
A suspense account was opened for the difference in the trial balance.
CONTROLLING THE BOOKKEEPING SYSTEM
313
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Immediately after production of the above, the following errors were discovered:
(i) A payable account had been debited with a $300 sales invoice (which had been cor-
rectly recorded in the sales account).
(ii) The heat and light account had been credited with gas paid $150.
(iii) G Gordon had been credited with a cheque received from G Goldman for $800. Both
are receivables.
(iv) The insurance account contained a credit entry for insurance prepaid of $500, but the
balance had not been carried down and hence had been omitted from the above trial
balance.
(v) Purchase returns had been overcast by $700.
Requirements
(a) Complete the table below to indicate the journal entries necessary to correct each of
the above errors.
Item Name of account Debit amount ($) Credit amount ($)
(i)
(ii)
(iii)
(iv)
(v)
(b) Insert the missing items into the suspense account given below, in respect of any errors
that you have identifi ed in (a), and total the account:
Suspense account
$ Description Item no. $
Balance as per trial balance
(c) Name the type of error that has occurred in each of items (i)__(iii) ( max. fi ve words
each ).
(i)
(ii)
(iii)
CONTROLLING THE BOOKKEEPING SYSTEM
REVISION QUESTIONS C2
314
(d) Insert the missing items into the boxes below to show the recalculated net profi t for
the year to 31 March 20X8:
$
First draft profi t 9,750
Adjustment re:
Adjustment re:
Revised net profi t
(e) Insert the missing fi gures into the statement of fi nancial position of WL at 31 March
20X8, given below:
Assets Cost ($) Acc. Depreciation ($) Carrying Amount ($)
Non-current assets
Land and buildings 10,000 2,000
Plant 12,000 3,000
22,000 5,000
Current assets
Inventories
Receivables
Prepayments
Bank
Capital and liabilities
Capital
P r o fi t for the year
Current liabilities
Payables
Accrual
Question 7
You are the payroll administrator in your organisation, and your responsibilities include
the preparation of the monthly payroll for 100 employees.
Each employee is paid a basic monthly wage, with overtime at time and a third.
Employees complete an overtime report form that they submit direct to you each month.
You input the necessary data to a computerised payroll system, in batches, which are proc-
essed as a single run at the end of each month.
CONTROLLING THE BOOKKEEPING SYSTEM
315
FUNDAMENTALS OF FINANCIAL ACCOUNTING
The system produces a monthly summary of payroll data. You then journalise the totals
to provide input to the nominal ledger.
You make out cheques in the following month for employees ’ net wages.
The highest-paid employee earns $2,000 basic pay per month gross.
An extract from the payroll printout for the month ended 31 October 20X8 was as
follows:
Employee
number Gross wages ($) Ta x ($) Employees ’ SS ($) Pension payments Employer’s SS ($)
1 6,000 1,000 200 360 520
2 2,222 360 200 132 160
3 2,160 340 180 125 150
4 1,760 300 160 105 120
etc
100 600 2 48 40 60
Totals 78,000 12,800 5,600 4,600 5,250
Requirements
(a) Insert the missing items into the boxes given below in respect of the ledger entries to
be made for wages:
(i)
DR or CR?
Amount ($)
Total wages expense account
This is made up of the fi gures from the following columns in the question:
Column head ing
Amount ($)
(ii)
DR or CR? Amount ($)
Employee income tax payable account
This is made up of the fi gures from the following columns in the question:
Column heading Amount ($)
CONTROLLING THE BOOKKEEPING SYSTEM
REVISION QUESTIONS C2
316
(iii)
DR or CR? Amount ($)
Pension scheme payable account
(iv)
DR or CR? Amount ($)
Wages payable account
(i.e. net wages payable)
(b) Insert into the box the amount to be debited to the income statement for the month
of October, in respect of wages costs:
$....................
Question 8
The trial balance of E Ltd did not balance and the following errors have been discovered:
(i) A cheque for $1,000 received from a receivable had been credited to the sales account
and debited to the bank account.
(ii) The cash book had been undercast by $250.
(iii) A machine costing $5,000 had been debited to the machinery repairs account.
Machinery is depreciated at 10 per cent on cost and no residual value is assumed.
Requirements
(a) Insert the missing items into the table below to show the correction of the above
errors.
Item Account
Debit ($) Credit ($)
(i)
(ii)
(iii)
(iv)
(b) (i) Insert the missing words in this sentence.
Financial control is important to prevent __________ and __________ .
(ii) Insert the missing words:
●
An example of fi nancial control is the ______ ledger _______ account.
●
An example of fi nancial control is the bank ________.
317
Solutions to Revision
Questions
Solution 1
1.1 Ignoring accrued expenses means that insuffi cient expense has been charged against
profi ts, thus making profi ts too high (i.e. overstated); overvaluing closing inventories
will have resulted in cost of goods sold that is too low, hence gross profi t will be too
high (i.e. overstated). Both errors result in an overstatement of profi t, so the correct
answer is an overstatement of $1,000 $1,300 $2,300.
1.2 The correct bank balance can be found as follows:
$
Cash book balance 5,675 overdrawn (credit)
Correct standing order error 125 debit
Reverse error of dishonoured cheque 450 credit
Enter dishonoured cheque correctly 450 credit
Correct balance 6,450 overdrawn
1.3 Answer: (B)
The supplier’s records show a smaller amount owing than your own records. This
could not be due to an invoice not received as this would further increase the
amount owing according to your records. If you have paid the supplier, this would
further reduce the balance in his records. If you have returned goods, this would also
reduce the balance in his records. If you are to account for cash discount in your
records, this would reduce the balance in your records to agree to the supplier’s.
1.4 Purchases can be found by constructing a control account:
$ $
Cash paid 542,300 Opening payables 142,600
Discount received 13,200 Purchases ?
Goods returned 27,500
Closing payables 137,800
720,800 720,800
Purchases $720, 800 $142, 600 $578, 200
9
CONTROLLING THE BOOKKEEPING SYSTEM
SOLUTIONS TO REVISION QUESTIONS C2
318
1.5 Answer: (B)
A credit balance on the suspense account indicates that the debit total of the trial
balance was higher than the credit total. An error that could cause this would involve
either too great a value having been debited, too little a value having been credited,
or a combination of these where an item has been recorded as a debit when it ought
to have been a credit.
(A) would result in too little having been debited to the customer’s account.
(B) would result in an additional debit entry, therefore this is the correct answer.
(C) would not cause any imbalance in the trial balance as both the debit and credit
entries will have been omitted.
(D) would not cause any imbalance in the trial balance as both a debit and a credit
entry have been made even though they were the wrong way round.
1.6 Sales can be found by constructing a mini sales control account:
$ $
Receivables at 1.1.X3 10,000 Receipts, less cash sales 80,000
Sales ? Receivables at 31.12.X3 9,000
89,000 89,000
Sales $79,000
1.7 The cash book balance needs adjusting for the dishonoured cheque, and the bank
balance needs adjusting for the unpresented cheque. The correct balance for the
statement of fi nancial position is therefore:
$565 overdrawn dishonoured cheque $92 $657 overdrawn
1.8 Answer: (A)
Including a non-current asset in the purchases account has overstated purchases,
and hence has overstated cost of goods sold; this has the effect of understating gross
profi t. Including stationery inventories with closing inventories of raw materials
has the effect of increasing closing inventories of raw materials, which then under-
states the cost of goods sold, and hence overstates gross profi t. So, gross profi t has
been understated by $50,000 and overstated by $10,000 – a net understatement of
$40,000.
Inventory of stationery should reduce the total of stationery expenses in the
income statement. Omitting to consider the closing inventories will have overstated
the expenses. An overstatement of gross profi t and an overstatement of expenses by
the same amount (because of the stationery error) will have no effect on net profi t.
Therefore, the only effect on net profi t will be the understatement due to the non-
current asset error.
The result, therefore, is that gross profi t has been understated by $40,000 and the
net profi t understated by $50,000.
CONTROLLING THE BOOKKEEPING SYSTEM
319
FUNDAMENTALS OF FINANCIAL ACCOUNTING
1.9 The closing balance is calculated as:
$
Opening balance (32,750 – 1,275) 31,475 Debit
Sales 125,000 Debit
Receipts (122,500) Credit
Cash discounts (550) Credit
Refunds 1,300 Debit
Closing balance 34,725 Debit
1.10
$
Original cash book fi gure 2,490
Adjustment re: charges (50)
Adjustment re: dishonoured cheque (140)
2,300
1.11
Cash book $ Bank statement $
Balance (8,970) Balance (11,200)
Bank charges (550) Credit in error (425)
Unpresented cheques (3,275)
Outstanding deposits 5,380
(9,520) (9,520)
1.12 Answer: (C)
1.13 Answer: (B)
1.14 Answer: (B)
1.15
$
Bank statement – overdrawn (825)
Unpresented cheques (475)
Deposits outstanding 600
Direct debit error 160
Bank balance – overdrawn (540)
1.16
$
Petty cash balance at 1 July 150
Photocopies receipts 25
Cheque cashed (90)
85
Cheques drawn for cash 500
585
Petty cash balance at 1 August (200)
Cash paid out for expenses 385