Question

In: Accounting

C Blackwood is a furniture and appliances retailer. The following figures have been extracted from his...

C Blackwood is a furniture and appliances retailer. The following figures have been extracted from his book for the month of April 2019.

$

Cash Sales 2 560

Cheque received from debtor 1 520

Discount allowed to debtors 30

Return Inwards (credit customers) 75

Debtors 1 April 2019 1 120

Debtors 30 April 2019 1 485

Purchases on credit 3 210

Purchases for cash 200

Stock 1 April 2019 1 180

Stock 30 April 2019 1 290

You are required to:

Prepare the Sales Ledger Control Account in the General Ledger for April 2019

(6.5 marks)

Calculate Blackwood’s Gross Profit for the same month. (9.5 marks)

Advise C. Blackwood. of the main types of control accounts and two (2) benefits for using them.

The double entry procedures in control accounts may require the use of a special set of contra entry. With the use of an appropriate example, explain the concept of “set-off “to C. Blackwood

Expert Solution

Sales Control Account

dr					cr
2019		$	2019		$
Apr-01	Bal b/d	1120		Bank	1520
	Sales	1990		Discount allowed	30
				Return inwards	75

			Apr-30	Bal b/d	1485
		3110			3110

I have balanced the acoount with credit sales as there were none mentioned.

2.

Opening stock =1180

Closing Stock = 1290

Total Purchases = 3210 + 200 = 3410

Gross Sales = Cash Sales + Credit Sales = 2560 + 1990 = 4550

Net Sales = Gross Sales - discount allowed - return inwards

= 4550 - 30 - 75 = 4445

COGS = opening stock + purchases - closing stock

= 1180 + 3410 - 1290 = 3300

Gross Profit = Net Sales - COGS

= 4445 - 3300

= $1,145

3. The two main types of control accounts are :

a. Sales Control account : It is a control account that summarizes all the entries and balances of all the individual customers in the sales ledger. It shows the total amount the company is owed by the customers. The balance of the sales control account should be equal to the balance of the debtor ledger account.

b. Purchases Control account - It is a control account that summarizes the entries and balances of all the individual accounts of suppliers in the purchases ledger. It shows the total amount owed by the company to its suppliers. The balance of the purchases control account should be equal to the balance of the payables ledger.

Advantages of using a control account are :

1. It acts as an independent check on the arithmetic accuracy of the balances brought down of the debtor or the paybles ledger.

2. It also helps the firm to detect and theft or fraud in the firm.

4. Contra entry is a transaction in which the same account can be debited or credit in contrary situation. For example when we withdraw cash from the bank for office use ot when we deposit cash in the bank. A contra entry has no ultimate affect on the business. When a contra entry is made the amount is transferred from one bank to another but there is no affect in the business.

Generally contra entries invole bank and cash accounts, thought it can also be used to net the money owed to and by a creditor.

Please like the solution if satified and drop a comment in case of any doubts.

Thankyou

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