Control Account Reconciliation and Accurate Financial Statements

This assignment covers various types of control accounts, including purchase ledger control account and sales ledger control account. It provides a step-by-step guide on reconciling these accounts, identifying errors, and preparing accurate financial statements. The assignment also discusses the importance of control accounts in detecting fraud and providing total figures for debtors and creditors. It includes examples and references to relevant accounting theories and practices.

FINANCIAL ACCOUNTING

TABLE OF CONTENTS

P1. Applying double entry book keeping system and preparation of accounts (case 1)
Recording journal entries in the books of Norris
DATE PARTICULARS DEBIT (£) CREDIT (£)
1 Cash A/C Dr.
To, Sales A/C
160
160
2 Insurance Premium A/C Dr.
To, Bank A/c
4000
4000
3 Accounts Receivable A/C Dr.
To, Sales A/c
2500
2500
4 Petrol A/C Dr.
To Cash A/C
500
500
5 Purchase A/C Dr.
To, Accounts Payable A/C
1700
1700
6 Drawings A/C Dr.
To, Cash A/C
570
570
7 Purchase A/C Dr.
To, Cash A/C
400
400
8 Computer A/C Dr.
To, Cash A/C
8000
8000
Posting Journal entries to respected Ledger Accounts for Norris
Cash A/C
Date Particulars Amount (£) Date Particulars Amount (£)
1 To Sales A/C 160 4 By Petrol A/C 500

To balance c/d 9310 6 By Drawing A/C 570
7 By Purchase A/C 400
8 By Computer A/C 8000
TOTAL 9470 TOTAL 9470
Sales A/C
Date Particulars Amount (£) Date Particulars Amount (£)
To balance c/d 2660 1 By Cash A/C 160
3 By Accounts Receivable
A/C
2500
TOTAL 2660 TOTAL 2660
Purchase A/C
Date Particulars Amount (£) Date Particulars Amount (£)
5 To Accounts Payable A/C 1700 By balance c/d 2100
7 To Cash A/C 400
TOTAL 2100 TOTAL 2100
P2. Producing trial balance using balance off rule (case 2 question a)
Recording Journal entries in the books of Mathews
DATE PARTICULARS DEBIT (£) CREDIT (£)

1st January Bank A/C Dr.
To, Capital A/C
10000
10000
2nd January Supplies A/C Dr.
To, Bank A/C
4000
4000
3rd January Delivery Van a/C Dr.
To, Bank A/C
2000
2000
4th January Purchase A/C Dr.
To Creditors A/C
1000
1000
5th January Bank A/C Dr.
To, Sales A/C
1500
1500
6th January Debtors A/C Dr.
To Sales A/C
5000
5000
7th January Creditors A/C Dr.
To, Bank A/C
800
800
8th January Rent A/C Dr.
To, Bank A/C
200
200
9th January Drawing A/C Dr.
To, Bank A/C
100
100
Posting Journal entries to respected Ledger Accounts for Matthews
Bank A/C
Date Particulars Amount (£) Date Particulars Amount (£)
1 To Capital A/C 10000 2 By Supplies A/C 4000
5 To Sales A/C 1500 3 By Delivery Van 2000

7 By Accounts Payable 800
8 By Rent A/C 200
9 By Drawings A/C 100
By Balance c/d 4400
TOTAL 11500 TOTAL 11500
Capital A/C
Date Particulars Amount (£) Date Particulars Amount (£)
To balance c/d 10000 1 By Bank A/C 10000
TOTAL 10000 TOTAL 10000
Supplies A/C
Date Particulars Amount (£) Date Particulars Amount (£)
2 To, Bank A/C 4000 By balance c/d 4000
TOTAL 4000 TOTAL 4000
Delivery Van A/C
Date Particulars Amount (£) Date Particulars Amount (£)
3 To Bank A/C 2000 By balance c/d 2000

TOTAL 2000 TOTAL 2000
Purchase A/C
Date Particulars Amount (£) Date Particulars Amount (£)
4 To Accounts Payable A/C 1000 By balance c/d 1000
TOTAL 1000 TOTAL 1000
Accounts Payable A/C
Date Particulars Amount (£) Date Particulars Amount (£)
7 To Bank A/C 800 4 By Purchase A/C 1000
To balance c/d 200
TOTAL 1000 TOTAL 1000
Sales A/C
Date Particulars Amount (£) Date Particulars Amount (£)
To balance c/d 6500 5 By Bank A/C 1500
6 By Accounts receivable 5000
TOTAL 6500 TOTAL 6500
Accounts Receivable A/C
Date Particulars Amount (£) Date Particulars Amount (£)
6 To sales A/C 5000 By balance c/d 5000

TOTAL 5000 TOTAL 5000
Rent A/C
Date Particulars Amount (£) Date Particulars Amount (£)
8 To Bank 200 By balance c/d 200
TOTAL 200 TOTAL 200
Drawings A/C
Date Particulars Amount (£) Date Particulars Amount (£)
9 To Bank 100 By balance c/d 100
TOTAL 100 TOTAL 100
Preparation of Trial Balance for Matthews
S. No. Particulars L.F. Debit (£) Credit (£)
1 Capital 10000
2 Bank 4400
3 Supplies 4000
4 Delivery Van 2000
5 Purchase 1000
6 Creditors 200

7 Revenue (sales) 6500
8 Debtors 5000
9 Rent expense 200
10 Drawing 100
TOTAL 16700 16700
M1. Analysing sales and purchase transactions to compile trial balance (Case 2 question b)
Sales A/C
Date Particulars Amount (£) Date Particulars Amount (£)
To balance c/d 6500 5 By Bank A/C 1500
6 By Accounts receivable 5000
TOTAL 6500 TOTAL 6500
Purchase A/C
Date Particulars Amount (£) Date Particulars Amount (£)
4 To Accounts Payable A/C 1000 By balance c/d 1000
TOTAL 1000 TOTAL 1000
Above ledger accounts are prepared after analysing sales and purchase accounts of
Matthews. These transactions will be compiled in final trail balance for starting 9 days.

D1. Recording transactions correctly and producing accurate trial balance
Above Trail balance has been prepared for Matthews for starting period of 9 days i.e.
from 1st January to 9th January. It has been identified that both the balance of account i.e. debit
balance and credit balance are matching with each other. Hence, it can be said that trial balance
has been prepared accurately along with recording all the transactions correctly by applying all
accepted accounting principles.
P3. Preparing final accounts after making adjustments (Case 3)
Income Statement
Statement of profit and loss for Kevin Suri fir the year end 31st December 2005
Particulars Details Amount (£) Particulars Details Amount (£)
To Opening inventory 23340 By sales 365200 364000
To Purchase 266800 265200 Less: return inwards -1200
Less: return outwards -1600 By inventory at end 25680

To wages 46160
To GP (Bal. Fig.) 54980
Total 389680 Total 389680
To rent 13000 12000
By Gross profit
carried down 54980
less: Prepaid rent -1000 By discount received 1622
To Motor Expenses 3720
by surplus on
revaluation 150000
To Insurance 760
To Provision for bad
debts 178
To discount allowed 864
To light and heat 3074 3534
Add: accrual 460
To depreciation 11128
To net profit
(Balancing figure) 161418
Total 206602 Total 206602
Statement of financial Position
Balance Sheet for Kevin Suri as at 31st December 2005
Liabilities Details Amount (£) Assets Details Amount (£)

Capital 225600 366218 Bank 3416
less: drawings -20800 Land 250000
add: Net profit 161418 Furniture 28000 5600
Accrual light and heat 460 Less: Aggregate Dep. -16800
Accounts payables 23004
Current year
depreciation -5600
Provision for bad debts 516
Building 100000 92000
Less: Aggregate Dep. -6000
Current year
depreciation -2000
Motor car 24000 8232
Less: Aggregate Dep. -12240
Current year
depreciation -3528
Prepaid rent 1000
Accounts receivables 17330
Total 390198 Total 390198

P4. Producing final accounts for sole trader and partnership (Case 3)
Financial accounts of Sole Trader
Sole trader is the person who is the single owner of a business also known as sole
proprietorship (Deegan, 2013). Main purpose of sole traders is profit earning and are also not
legally required to prepare and present their accounts. Main financial accounts that are prepared
by sole trader are:
 Trading Account
Illustration 1: Financial Accounts, 2017
Trading accounts helps Sole Proprietor in knowing how much gross earnings he has
generated from his business i.e. earnings after deducting all its direct expenses.
 Profit and Loss Account

Illustration 2: Financial Accounts, 2017
Profit and loss account is prepared in order to determine the net earning of business.
Mostly sole traders prepare only profit and loss account as they have interest in knowing their net
profit only.
 Balance sheet

Balance sheet is prepared to ascertain the amount of assets that a business possess
including the amount of cash in hand and at bank along with the amount that a business owe.
This shows the financial position of business (Klein, 2015). Sole traders are generally small
businesses and mostly does not prefer to prepare balance sheet for their business.
Financial Accounts of Partnership Business
Partnership is that form of ownership where business is owned and controlled by 2 or
more than 2 persons jointly. People come together with a common objective to start a partnership
business. Financial statements of partnership business generally includes:
 Income Statement
Income statement is just as profit and loss account that is prepared under sole trading
partnership. It also helps in generating profit generated during a year.
 Partners capital Account
Illustration 3: Financial Accounts, 2017

Illustration 4: Financial Accounts, 2017
 Partners Current Account
Illustration 5: Financial Accounts, 2017
 Balance Sheet
Balance Sheet under partnership account is generally prepared in horizontal format.

M2. Analysing financial statements (Case 3)
Analysis of Profit and loss Account
From the analysis of profit and loss account of Kevin Suri, it has been determined that,
gross earning of the business is £54980 while its net earning is £161418. Generally gross
earnings of business are higher than its net earnings. But, in this case net earnings are more, this
is due to extraordinary non cash income that is raised on revaluation of land that is amounted to
£150000. However, if this income is ignored that actual net earnings of the business will be
£11418, which is nominal amount of profit. It can be said that profit earning capacity of business
is strong.
Analysis of Balance Sheet
From the analysis of financial position of Kevin Suri, it has been determined that after
considering net profit of the year, capital of business raises to £366218 i.e. the owner's liability
of the business and high. However, Bank balance with business is just £3416. Necessary actions
are required to be taken by Kevin Suri to improve its bank balance as this portrays weak liquidity
position of the firm.

D2 Accurate and appropriate calculation for construction of final accounts (Case 3)
Working notes:
1. Calculation of Depreciation
Assets Details Amount
Furniture and fittings 28000 / 5 5600
Building 10000*2% 2000
Motor Vehicle (24000-12240)*30% 3528
TOTAL 11128
2. Calculation of allowance for debts
To provision for bad debts required (17330-250)*3% 516
Add: bad debts during year 250
Provision already existing -588
178
P5. Preparation of bank reconciliation statement (Case 4)
S. No. Particulars Amount
1st December Opening balance of bank account 16491
2nd December Less: Cheque no. 780 withdrawal -426
2nd December Less: Cheque no. 781 withdrawal -737
2nd December Less: Wrong deposit recorded -962
2nd December Less: Wrong deposit recorded -1103
5th December Less: Bank Charges -47

6th December Add: deposits in Bank 2065
6th December Add: Cheque withdrawal recorded in bank account 221
10th December Less: Wrong deposit recorded 2312
10th December Less: standing rates debited -137
11th December Less: Cheque no. 783 withdrawal 212
13th December Add: deposits made in bank 2312
14th December Less: Wrong deposit recorded -419
TOTAL 19782
M3. Application reconciliation process (Case 4)
Bank Reconciliation Statement:
It is the process of preparing a statement after matching the balances of entity's cash and
bank book with the information on a bank statement. The main purpose of preparing Bank
Reconciliation statement is to ascertain the difference between both the statements and further
recording the changes in entity's record to make statements appropriate. Information on the bank
statement is the record of all transactions that are occurred in the favour of entity including
deposits and withdrawals during a specific period which is generally for a month.
Main terminologies used in bank reconciliation statement:
Deposit in transit: These are those transactions when Cash or checks or both that have been
recorded and received by the organisation but the same has not been deposited in bank or have
deposited but yet not accounted in bank account. Due to these transactions balance in the bank
account and balance in the bank statement does not match at the end of month and so it becomes
a reconciling item which need to be considered while preparing bank reconciliation statement
(Bank Reconciliation Statement, 2017). This can occur when a deposit receipt or cheque reaches
at the bank too late after being recorded in the books, or if the entity mails the deposit to the bank

(in which case a mail float of several days can cause a delay), or the entity has not yet sent the
deposit to the bank even after the submission date.
Outstanding check: It is a check payment that has been written by the issuing organisation and
has been deducted from the general ledger account, but the same has not yet cleared in bank
account as a deduction from bank balance. The cheque will not appear in the month end bank
statement if it is not cleared by the bank till the end of the month and so is a reconciling item in
that need to be considered while making bank reconciliation statement.
NSF check: It refers to non-sufficient funds. When a bank account does not consist of enough
balance to honour a cheque amount than it is referred as NSF cheque. The entity that issues an
NSF check will have to pay charges as a fee from its bank and it will also create an outstanding
balance of the entity's bank account. The cheque when written by the company, amount of the
same will be deducted from the books of accounts but the same may not be deducted from the
bank balance by the bank which arise the transaction that need to be reconciled.
P6. Explaining process to reconcile control accounts and clearing suspense account (case 5)
Reconciliation is done to ensure that entries made in sale and purchase ledger agree with
the entries in the control accounts (Weil, Schipper and Francis, 2013). Total of all should also
match with each other, however, it totals does not match that it indicates that there is an error
either in memorandum account or in Control account. For preparation of control account
accurate journal entries need to be recorded.
Following are the corrected journal entries:
DATE PARTICULARS DEBIT (£) CREDIT (£)
1 Cash A/C Dr.
To sales A/C
100
100
2 Rates expenses A/C Dr.
To Rent A/C
500
500

3 Non-Current asset A/C Dr.
To Repair Expense A/C
1000
1000
4 Sales A/C Dr.
To Rent A/C
200
200
5 Cash A/C Dr.
To Sale A/C
9
9
6 Cash A/C Dr.
To Sales A/C
400
400
A section of ledger is controlled by control account. Control refers to the balance in the
section of the ledger should be equal to the balances on the control account is controlling.
Purpose of Control Account:
 It helps to detect fraud.
 It helps to identify errors.
 It provides the total figures of debtors and creditors quickly for the preparation of final
accounts.
M4. Various types of accounts and how they can be reconciled
Different types of control accounts are as follows:
Purchase ledger Control Account
 It is also known as Creditors Control account.
 The main balance is on credit side and minority balance is on the debit side.
 Minority balance is created due to the following reasons:
◦ An overpayment of account to supplier.
◦ Return made to creditors yet not refunded.

◦ Deposit made to suppliers.
Sales ledger Control Account
 It is also known as Debtor control account.
 It has the main balance in the debit side and minority balance on the credit side
(Williams, 2014).
 Minority balance is created due to the following reasons:
◦ An Overpayment of account by the customers.
◦ Return Made by Debtors not yet refunded.
◦ Deposit made by customers
 Cash sales are not recorded in the sales ledger control account.
 Provision for doubtful debts also is not considered in sales ledger control account because
provision accounts are considered in general ledger account.
D4. Producing accurate reconciled accounts by applying appropriate method
Reconciled Sales Account
Particulars Amount
Cash sales recorded
Sales account set off with rent account
Cash sales recorded to correct amount
Wrong entry corrected
100
(200)
9
400
Balance to be transferred to Credit of sales
account
309