Scribd Logo
Upload

Welcome to Scribd!

  • 12 views

    Control-Accounts

    Uploaded by

    armanmahbub.note

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Control-Accounts

    Uploaded by

    armanmahbub.note
    12 views16 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    12 views16 pages

    Control-Accounts

    Uploaded by

    armanmahbub.note

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 16

    Control Account

    State reasons why a business might offer cash discounts to customers.


    1. To reduce bad debts.
    2. To encourage customers for prompt payment.
    3. To improve liquidity.
    4. To increase customers loyalty.

    Describe a credit control process that a business could use to ensure


    prompt payment from debtors.

    Credit control policy


    1. Trade reference may be sought.
    2. Bank reference may be sought.
    3. First credit order supplied may be of limited quantity.
    4. Ensuring payment of first credit order before second ordered issued.
    5. After ordered goods supplied immediate issue of invoice.
    6. Send regular statements to the customers.
    7. Allow discount to encourage prompt payment.
    8. In case of non-payment court action would be taken.

    Evaluate the use of control account in ensuring that the books are
    accurate.

    For
    1. Control account act as a checking mechanism.
    2. It helps to detect and prevent fraud.

    Against
    1. It needs professional skills to prepare.
    2. It can't detect all errors.
    Suggest possible reasons for the significant increase in sales over the
    years.

    1. Selling price may have been reduced.


    2. Profit margin/mark-up may have been reduced.
    3. Quality of the product may have improved.

    Explain the meaning of the term dishonoured cheque.

    Dishonoured cheque is a cheque which is not honoured by the bank and which has been refused
    by the bank for payment, may be because of insufficient funds or errors in drawing the cheque.

    Importance of control account


    For
    1. It helps to prepare financial statements quickly as it can calculate closing account receivables,
    credit sales (SLCA), closing account payables , credit purchase (PLCA).
    2. It acts as a checking mechanism as it helps to detect as prevent fraud.
    3. It helps to identify errors e.g. errors of original entry.

    Against
    1. It can't detect all errors e.g. errors of commission, principle.
    2. It requires professional skills to prepare which is costly and time consuming.
    3. It increases administrative work therefore it increases further cause.

    Why there might be a credit balance on the Sales ledger control account?
    1. A customer is overcharged in the invoice.

    2. Goods returned after payment.

    3. Discount allowed not posted.

    4. Overpayment received from customers.

    Why there might be a debit balance on the purchase ledger control account?
    1. The business may have overpaid an invoice.

    2. Good returned after payment.


    3. Overpayment to creditor.

    4. Discount received not posted.

    Ways of encouraging customers to pay quickly


    1. By offering cash discounts.

    2. By sending monthly statement.

    3. Stop supplying goods on credit until previous debts were cleared.

    4. Charging interest on overdue account.

    5. Insisting customers to buy in cash.

    Explain why there might be a contra entry in the control account


    When a customer is also a supplier a contra entry in the control account may arise. Instead of paying
    cash there account balance are off set against each other.

    You might also like