(a) With well cited examples, explain five reasons of having control accounts

[5 marks]

(b) TWAASANTA a sole trader, has given you the following Trial Balance for adjusting before preparing the Income Statement and Statement of Financial position for the year ended 30 April 2018:

Sales

Purchases

Sales Returns Purchases Returns Opening Inventory Trade Receivables Trade Payables Discounts Allowed Discounts Received Wages and Salaries Electricity

General Expenses Bank

Premises

Motor Vehicles Equipment

Capital

Drawings

Debit K000

33,000 260

6,900 14,125

Credit K000

131, 940

315

20,600 1,000

2,340 13,710 70, 000

5,000 3,500 25,000

3,000

16,070 755

559

Suspense ............. 306

Totals

TWAASANTA has given you the following information:

174,190 174,190

1. Discounts allowed of K55, 000 were doubled but posted correctly to the ledger accounts.

2. Purchases returns of K108, 000 had been posted to the debit of sales returns.

3. TWAASANTAs bank informed her that a cheque for K400, 000 from one of her customers was returned, marked: insufficient funds. The customer has, however, assured TWAASANTA that the debt will be settled.

4. The bank balance includes a fixed deposit account of K8, 000, 000 on which interest of 6% has been credited by the bank. There is no record of this transaction in TWAASANTAs books.

5. A customer who is also a supplier has agreed to an account set-off of the amount owed of K630, 000.

6. Closing inventory was valued at K9, 069, 000.

7. It had been discovered that an electricity bill of K90, 000 that had been accrued at 30 April 2017 was not brought down as an opening balance on the electricity account.

Required:

(a) Prepare the suspense account showing the correction of the errors above that would clear the suspense account. (4 marks)

(b) Prepare TWAASANTAs Income Statement for the year ended 30 April 2018, after correcting all the errors and adjustments in 1 to 7 above. (8 marks)

(c) Prepare TWAASANTAs Statement of Financial Position as at 30 April 2018. (8 marks)

[Total: 25Marks]

QUESTION TWO

(a) Explain the meaning of control accounts and give reasons why items such as payments in transit, omitted invoices and credit notes and other errors may need to be reconciled (5mark)

(b) You are employed as a financial accountant for Mwiinga, a sole trader who has engaged two trainee accounting clerks, Musonda and Maboshe. As Mwiinga operates an integrated computerized system for payables and receivables, he has divided responsibilities for Receivables and payables control accounts and personal accounts of customers and suppliers between the two trainees as follows:

Musonda responsible for preparation and maintenance of control accounts for receivables and payables in the nominal ledger

Maboshe Responsible for recording and maintaining the receivables and payables ledger.

It is at end of the accounting year and you have just discovered that the following errors have been committed by Musonda and Maboshe:

(i) Sales invoices totalling K600,000 had been omitted from Mwiingas accounting records. (ii) Irrecoverable debts of K12,000 were not recorded in the general ledger.

(iii) One of Mwiingas suppliers gave him a cash discount of K20,000 which both his trainee accountants recorded as though it was a purchase invoice.

(iv) A contra entry offsetting a balance of K150, 000 due to a supplier against the receivables ledger account for the same company had not been recorded in the control accounts.

(v) One of the purchase invoices for K175, 300 was entered in the accounting records as K153, 700.

(vi) One of the entries in the purchases day book was entered as K76, 500 instead of K67, 500. (vii) One account balance in the receivables ledger was overstated by K8, 000.

(viii) A payment made to a supplier of K225, 000 was treated as if it was a receipt from a customer. The control accounts were otherwise correctly recorded for this.

(ix) The total of discounts allowed of K45, 200 from the cash book was not included in the control account.

(x) Mwiinga received a refund of K39, 000 for previously overpaying his suppliers. This has not been included in the control account.

(xi) Credit balances in the payables ledger amounting to K28, 550 had been included in the payables list as though they were debit balances.

(xii) Cash received from a customer of K167,600 was not recorded in the receivables ledger.

(xiii) Sales returns amounting to K83,800 had been omitted from a personal customer account.

Prior to the discovery of these errors, Mwiingas trainee accounting clerks obtained the following details from the ledgers (balances before the above transactions):

Receivables Control account balances b/f: Debit Payables Control account balances b/f: Credit List of Receivables balance (net) b/f Debit

List of payables balance (net) b/f Credit Required:

K

1,873,200 1,728,300 1,700,400

1,785,200 Prepare the following corrected control and ledger accounts for Mwiinga:

(a) Corrected receivables ledger control balance account (b) Corrected receivables ledger total balance

(c) Corrected payables ledger control account balance (d) Corrected payables ledger total balance

(5 marks) (5 marks) (5 marks)

(5 marks)

QUESTION THREE

(a) Briefly explain why are bank reconciliation is needed (1mark) (b) Identify areas you may look for when preparing Bank Reconciliations (4marks)

Monica is a sole trader who runs a tailoring business. She has employed her sister Hellen to help with cash collection and receipting customers who make payments usually in instalments upon delivering materials to Monicas shop and upon collection of their finished clothings. Hellen is responsible for recording all cash receipts and payments in the business cash book.

At 30 June 2017, Monicas bank (ledger) account showed an overdraft of K13, 795 while her bank statement showed a credit balance of K655.

Upon carrying out some investigations, the following errors have been discovered:

(i) Monica issued cheques to suppliers of chitenge and suiting materials totalling K4, 710 in June 2017. These were only debited to Monicas bank statement on 7 July 2017.

(ii) Monica withdrew cash K500 on 28 June which was not recorded in her cash book.

(iii) One of the cheques issued by Monica to suppliers of special suiting buttons appears on her bank statement as K3, 250 but was incorrectly recorded by Hellen as K2, 800.

(iv) Monica has not yet made any entry of the order she gave to the bank to transfer K12, 500 from her personal account to the business account, which the bank did on 30 June 2017.

(v) Bank charges of K645 were debited by the bank on 30 June 2017 but were not recorded by Monica by the date.

(vi) Monica had issued a cheque to a supplier of a zig zag machine of K1, 380 on 23 June 2017. On 26 June 2017, the cheque was dishonoured but Monica had not recorded this by 30 June as she only revived the cheque in question on 6 July 2017.

(vii) Monica received cheques on 28 June from her customers to the value of K2, 285. On 30 June 2017, these did not reflect on the bank statement until 3 July 2017.

(viii) Monica received mobile phone communication from her bank notifying her of a standing order from one of her customers of K260. Monica recorded this in June but the bank did not formalize the entry on the bank statement as a matter of error.

In her quest to maintain a double entry system for her sisters business, Hellen who is of basic accounting knowledge made the following errors:

1. Purchases account was under cast by K600.

2. The sale of a business motor vehicle for cash K1, 500 was correctly recorded in the cash account but credited to sales account.

3. Monica paid K300 insurance for personal motor vehicle using business debit card but Hellen included this in motor expenses account.

4. Sales of goods on credit K800 were completely omitted from the accounting records.

[Total: 20 Marks]

5. An electricity bill of K550 was correctly recorded in the electricity account and debited to the payable account.

Required:

(a) Prepare Monicas adjusted bank account as at 30 June 2017. (7 marks)

(b) Prepare a reconciliation of a bank statement balance to Monicas corrected bank ledger account in the general ledger as at 30 June 2017. (5 marks)

(c) Show the journal entries to correct the errors (1) to (5) made by Hellen including drawing up a suspense account to calculate its opening balance.

QUFSTION THREE. (a) Briefly coplain why are bank roseaciliation is neoded (tmark) (b) Identify areas yoa may bok for when pecpurieg bink Rocosciliations (Amarks) help with cash sollection and reseipting cuetamen who make poymints usually in instalments upee deliveriteg materials io Monica"s shop and upen enllection of their finiched eloching"'s. A 30 lune 2017, Monica's bank (lodger) acsoent showed an evertat of K13, 795 while ber bank slatencat showed a credit tulance of K655. Upon carrying out swene investigations, rhe following errons have been disceverat: (i) Monica issued choqocs to suppliers of chitenge and sating mutcriuls sotalling K4, 740 in June 2017. These were oaly debited to Monica's bank sataterest en 7 Jaly 2017. (ii) Monican wildew cash K500 en 28 lune which aas syt reconded in ber cash book. (iii) One ef the choques issued by Monica to mipplien of special siting buttons appears ou her bank statement as K3, 250 but was incomectly roceedod by Hellem as K2, 800 . (iv) Monica has net yet made any entry of the onder dee gne so the hak to trander K:2, $00 from her personal accouat to the besiness accoutt, which the hask did on 30 June 2017. Monica by the date. (vi) Monica had issued a cheque to a supplier of a zig an machine of K1,350en23 fune 2017. On 26 June 2017, the cheque was dishonoured but Mosice had not recoeded this by to Juse as she only revived the cheque in quetion on 6 loly 2017. June 2017, thise did not reflect on the buak statcmeer antil 5 Jely 2017. (viii) Mosica received mobile phone comumunication from her hunk astifying her of a standing oder from one of her custamers of K260. Monica roverded tis in Jaee bot the hank did not Girmalize the entry en the bank stmement as a manter of ense. In hor quest to mainain a double entry syatem for her satar's besineos. Hellen who is of basic accounting knowlolge made the following ernoc: 1. Purchaes account was ander cast by Kin00. 2. The sale of a business motor vehicle for cadh K1, 500 wat comectly reconfed in the calh account ber credined to sales acroant. included this in motor expenses acceunt. 4. Sales of goods en crode KSo0 were cenpletcly emitad fom the awounting reconds. the payable azcount. Required: (a) Prepare Monica's adjusted bank account as all 30 hene 2017. (7 murks) (b) Prepare a reconcilution of a bank statement bolane so Motica's corrected bank ledger ascount in the sencral ledger as at 30 late 2017 . (5 marks) (c) Show the journal entries to coned the ensoes (1) to (5) made by Hellen inchating draing up a suspense accourt to calculate its spenine tulance. (S marks) TTotal: 25 marka! QUFSTION THREE. (a) Briefly coplain why are bank roseaciliation is neoded (tmark) (b) Identify areas yoa may bok for when pecpurieg bink Rocosciliations (Amarks) help with cash sollection and reseipting cuetamen who make poymints usually in instalments upee deliveriteg materials io Monica"s shop and upen enllection of their finiched eloching"'s. A 30 lune 2017, Monica's bank (lodger) acsoent showed an evertat of K13, 795 while ber bank slatencat showed a credit tulance of K655. Upon carrying out swene investigations, rhe following errons have been disceverat: (i) Monica issued choqocs to suppliers of chitenge and sating mutcriuls sotalling K4, 740 in June 2017. These were oaly debited to Monica's bank sataterest en 7 Jaly 2017. (ii) Monican wildew cash K500 en 28 lune which aas syt reconded in ber cash book. (iii) One ef the choques issued by Monica to mipplien of special siting buttons appears ou her bank statement as K3, 250 but was incomectly roceedod by Hellem as K2, 800 . (iv) Monica has net yet made any entry of the onder dee gne so the hak to trander K:2, $00 from her personal accouat to the besiness accoutt, which the hask did on 30 June 2017. Monica by the date. (vi) Monica had issued a cheque to a supplier of a zig an machine of K1,350en23 fune 2017. On 26 June 2017, the cheque was dishonoured but Mosice had not recoeded this by to Juse as she only revived the cheque in quetion on 6 loly 2017. June 2017, thise did not reflect on the buak statcmeer antil 5 Jely 2017. (viii) Mosica received mobile phone comumunication from her hunk astifying her of a standing oder from one of her custamers of K260. Monica roverded tis in Jaee bot the hank did not Girmalize the entry en the bank stmement as a manter of ense. In hor quest to mainain a double entry syatem for her satar's besineos. Hellen who is of basic accounting knowlolge made the following ernoc: 1. Purchaes account was ander cast by Kin00. 2. The sale of a business motor vehicle for cadh K1, 500 wat comectly reconfed in the calh account ber credined to sales acroant. included this in motor expenses acceunt. 4. Sales of goods en crode KSo0 were cenpletcly emitad fom the awounting reconds. the payable azcount. Required: (a) Prepare Monica's adjusted bank account as all 30 hene 2017. (7 murks) (b) Prepare a reconcilution of a bank statement bolane so Motica's corrected bank ledger ascount in the sencral ledger as at 30 late 2017 . (5 marks) (c) Show the journal entries to coned the ensoes (1) to (5) made by Hellen inchating draing up a suspense accourt to calculate its spenine tulance. (S marks) TTotal: 25 marka