Control Accounts provide J-Quan Ltd with useful information on sales and purchases. At the end of January 2021, the following balances were extracted from the company’s ledgers: Details/Accounts $ January 1, 2021: Purchases ledger balance b/d (dr) 25,000 Sales ledger balance b/d (cr) 18,700 Sales ledger balance b/d (dr) 51,400 Purchases ledger balance b/d (cr) 37,400 January 31, 2021: Bad debts written off 30,000 Discount received 4,600 Set off between sales and purchases ledgers 4,000 Credit sales for the month 37,800 Cheques paid to supplier’s 31,000 Interest on overdue customers’ accounts 3,500 Cash received from debtors 29,000 Dishonoured suppliers’ cheques 1,500 Discount allowed 45,000 Cash sales for the month 12,000 Credit purchases for the month 24,000 Refunds to credit customers 2,800 Return inwards 4,200 Cash purchases 7,500 Cheques received from accounts receivable 33,000 Return outwards 2,400 Cash paid to creditors 8,900 Interest on overdue suppliers’ accounts. 800 Dishonoured customers’ cheques 2,000 Bad debt recovery 3,300 Required (a) Write up the company’s Sales Ledger Control accounts for the month of January 2021. (b) Write up the company Purchases Ledger Control account for the month of January 2021. (c) Identify TWO (2) reasons why a company would need to do Control Accounts
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Control Accounts provide J-Quan Ltd with useful information on sales and purchases.
At the end of January 2021, the following balances were extracted from the company’s ledgers:
|
Details/Accounts |
$ |
|
January 1, 2021: |
|
|
Purchases ledger balance b/d (dr) |
25,000 |
|
Sales ledger balance b/d (cr) |
18,700 |
|
Sales ledger balance b/d (dr) |
51,400 |
|
Purchases ledger balance b/d (cr) |
37,400 |
|
January 31, 2021: |
|
|
|
30,000 |
|
Discount received |
4,600 |
|
Set off between sales and purchases ledgers |
4,000 |
|
Credit sales for the month |
37,800 |
|
Cheques paid to supplier’s |
31,000 |
|
Interest on overdue customers’ accounts |
3,500 |
|
Cash received from debtors |
29,000 |
|
Dishonoured suppliers’ cheques |
1,500 |
|
Discount allowed |
45,000 |
|
Cash sales for the month |
12,000 |
|
Credit purchases for the month |
24,000 |
|
Refunds to credit customers |
2,800 |
|
Return inwards |
4,200 |
|
Cash purchases |
7,500 |
|
Cheques received from |
33,000 |
|
Return outwards |
2,400 |
|
Cash paid to creditors |
8,900 |
|
Interest on overdue suppliers’ accounts. |
800 |
|
Dishonoured customers’ cheques |
2,000 |
|
Bad debt recovery |
3,300 |
Required
(a) Write up the company’s Sales Ledger Control accounts for the month of January 2021.
(b) Write up the company Purchases Ledger Control account for the month of January 2021.
(c) Identify TWO (2) reasons why a company would need to do Control Accounts
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