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Flashcards · YAC11 · AS Topic 1.2

Control procedures (AS Level) flashcards

20 cards on AS Topic 1.2, subtopics 1.2.1-1.2.2 to 1.2.5-1.2.9. Pick a subtopic or study them all.

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1.2.1-1.2.2 Trial balance

Trial balance
A list of all ledger balances at one date, in a debit and a credit column. The totals should agree.
Which items go in the debit column and which in the credit column of a trial balance?
Debit: assets, expenses, purchases, drawings, discount allowed. Credit: liabilities (including a bank overdraft), capital, revenue, discount received.
Trade payables account: credits 18,900, debits 14,250. Balance and trial balance column?
Balance 4,650, brought down on the credit side, so it goes in the credit column.
Limitations of an agreeing trial balance
It misses omission, posting to the wrong account of the right type, posting to the wrong type of account, the same wrong figure on both sides, reversal and compensating errors. It also gives no profit or financial position.

1.2.3-1.2.4 Control accounts

Control account, and why it is an independent check
A summary account totalling a sales or purchases ledger. Its balance should equal the total of the personal accounts. It is built from different data (book of prime entry totals), so a mismatch reveals an error.
Building a receivables control account
Opening balance + credit sales − sales returns − cash and cheques received − discounts allowed − irrecoverable debts written off ± contras = closing balance.
Building a payables control account
Opening balance + credit purchases − purchases returns − payments − discounts received − contras = closing balance.
A customer is also a supplier and the balances are set off (a contra). Entry?
Debit the payables control account, credit the receivables control account, with the amount set off.
Does a control account mismatch tell you the type of error?
No. It only proves there is an error somewhere in that ledger.

1.2.5-1.2.9 Correction of errors

Errors that make the trial balance disagree
One-sided entries, different amounts on each side, a transposition on one side, casting (addition) errors, and a balance left out or put in the wrong column.
Clues from the size of a trial balance difference
Divisible by 9: suspect a transposition (387 = 9 × 43), though it is only a clue. Twice a balance: that balance may be in the wrong column. Equal to a posting: suspect a one-sided entry.
How do you correct an error of original entry and a complete reversal?
Original entry: post only the difference. Complete reversal: post twice the amount, the right way round.
Rent paid of 850 was debited to Bank and credited to Rent. Correcting journal?
Debit Rent 1,700, credit Bank 1,700 (twice 850).
Debits exceed credits in the trial balance. Which side is the suspense balance?
A credit balance. (Credits exceed debits: a debit balance.) Only errors that make the totals disagree pass through suspense, and it must close to nil.
Suspense debit 1,260. Rent of 1,500 was credited to bank but not debited to rent; a return of 240 was not credited to purchases returns. Clear it.
Debit Rent 1,500, credit Suspense 1,500. Debit Suspense 240, credit Purchases returns 240. Suspense: 1,260 + 240 = 1,500 debits against 1,500 credit, so nil.
Profit 18,600. Purchases understated by 420, revenue overstated by 700, wages overstated by 150. Revised profit?
18,600 − 420 − 700 + 150 = 17,630.
A computer costing 1,900 was debited to purchases. Does the trial balance disagree? Correction and effect on profit?
No: an error of principle with both sides posted. Debit Computer equipment 1,900, credit Purchases 1,900. Profit was understated by 1,900.
Which errors change profit in a statement of revised profit?
Only corrections to income or expense accounts. An understated expense reduces profit; understated income increases it. Errors between statement of financial position accounts have no effect.
Control account or list of balances: which is corrected for a day book mis-total, and for a balance mis-copied into the list?
Day book total over- or under-added: correct the control account. Balance mis-copied or mis-added in the list: correct the list only.
A customer's credit balance of 80 was listed as a debit. Effect on the list of balances?
The list is overstated by 160, twice the balance. The control account is not changed.

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