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| Qualification | Pearson BTEC Level 3 National Extended Diploma in Business |
| Unit or Component number and title | Unit 10: Recording Financial Transactions |
| Learning aim(s) (For NQF/RQF only) | C: Construct control accounts for debtors and creditors for accurate financial control D: Examine the correction of errors in accounting records for financial control |
| Assignment title | “Financial control and how to correct errors“ |
| Hand out date | 20 March 2022 |
| Hand in deadline | 03 April 2022 |
Task 2a
Pence is encountering problems because his trial balance will not balance. You have been asked to prepare the control accounts and investigate the error(s).
Pence supplies you with the following information and he wishes to know if the error/s is/are in either the sales or purchases accounts.
2022
Jan 1 Opening purchases ledger and control balances £11,874
Opening sales ledger and control balances £19,744
Totals for the year 2022
Purchase Day Book £154,562
Sales Day Book £199,662
Returns outwards book £2,648
Returns inwards book £4,556
Cheques paid to suppliers £146,100
Cash paid to suppliers £78
Cheques and cash received from customers £185,960
Discount allowed £5,830
Discount received £2,134
Balances on the sales ledger set off against balances in the purchases ledger are £1036.
Dec 31 The list of balances from the Purchases ledger shows a total of £14,530 and from the sales ledger is a total of £22,024.
(i) Prepare the sales ledger control account (in Appendix 1)
(ii) Prepare the purchases ledger control account (in Appendix 1)
Task 2b
You are provided with the following information for Shore Ltd (all values in £s):
| Goods sold on credit | 118600 |
| Money received from credit customers | 96214 |
| Discount allowed | 300 |
| Goods returned by credit customers | 650 |
| Bad debt written off | 350 |
| Balance on customer account 1st June 2021 | 180824 |
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(i) Prepare a sales ledger control account (use template in Appendix 2)
A summary of account balances with the credit customers during June 2021 is shown below for Shore Ltd:
| £ | ||
| Carefree company | 76560 | |
| BB Ltd | 28109 | |
| Delta ltd | 32019 | |
| Val computers | 1645 | |
| Brenda | 350 | |
| Bradley | 31304 | |
| Hockey ltd | 32273 |
(ii) Reconcile these balances with the sales ledger control account in part (i) above.
| Sales ledger control accounts 2021 | £__________________ | |
| Sales ledger account as at 2021 | £__________________ | |
| Difference | £__________________ |
(iii) Discuss why and where the difference arises as per part (ii) above
(iv) Analyse the different circumstances of when control accounts and subsidiary accounts help to correct errors for financial control.
(v) Discuss the strengths and weaknesses of using control accounting systems in maintaining bookkeeping records.
Task 2c
(i) Explain six types of errors not detected by the trial balance.
(ii) Create the journal entries for the following identified errors (see Appendix 3):
1) Credit sale of goods £200 plus VAT at 20% on invoice 5546 to Harris completely omitted from the accounting system. The error was corrected on 11th May.
2) Credit sales of £50 plus VAT on invoice number 320 have been debited to J Aden instead of J Adams limited account 18th May.
3) Fuel cost £66 from receipt number 4966 has been debited to the motor vehicle account on the 21st May.
4) Postage paid £49 has been recorded as £94 (receipt number 7666 entered on the 25th of May).
5) Payment made on 26th May to creditors of £150 by cheque has been debited in the cash book and credited to the creditor control account.
6) Wages of £125 have been overcast and the creditor account has also been overcast by the same amount.
Task 2d
Harry is the owner of H Computers, a business that buys and sells computer equipment. The financial year-end is 31 October 2021. The business uses a manual system consisting of a general ledger, a sales ledger and a purchases ledger.
Double-entry takes place in the general ledger. You use a purchases day book and a sales day book. Totals from the daybooks are transferred into the general ledger.
At the end of the financial year on 31 October 2021, the following balances were taken from the general ledger:
| £ | |
| Sales | 564,123 |
| Purchases | 357,854 |
| Opening Inventory | 43,580 |
| Discount allowed | 6,905 |
| Discount received | 4,890 |
| Salaries and wages | 85,900 |
| General expenses | 65,264 |
| Bad debt | 820 |
| Computer equipment, at cost | 19,800 |
| Accumulated depreciation, computer equipment | 6,600 |
| Motor van, at cost | 12,500 |
| Accumulated depreciation, motor van | 7,500 |
| Sales Ledger control account | 42,530 |
| Purchases Ledger control account | 36,890 |
| Allowance for doubtful debts | 1,004 |
| Bank (overdraft) | 3,456 |
| Cash | 250 |
| VAT (credit balance) | 8,500 |
| Drawings | 12,000 |
| Capital | 15,500 |
| Suspense | Unknown |
Enter the balances into the columns of the trial balance shown in Appendix 4 and enter the opening balance in the suspense account in Appendix 5.
After completion of the journals, you found the following errors:
- The net column of the sales daybook had been undercast by £1,200.
- Credit purchases of £1,231 had been correctly debited to the purchases account, but had been credited to the payables control account as £2,131. Any VAT (sales tax) implications are to be ignored.
- A payment to a payable of £680 had been credited to both the payables control account and the bank account.
Show the debits and credits to the suspense account to correct the errors (see Appendix 5).
Update the trial balance (shaded columns in Appendix 4) and produce an income statement for the end of the year given the following:
the closing stock was £35,000
depreciation on the computer equipment was £4,000
depreciation on the motor vehicle was £2,500
Task 2e
(i) Discuss with examples the effects and impacts on the business of having errors in the financial statements. (ii) Comment on how such errors affect the reliance on the accounting systems and various stakeholders (internal and external).
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