O-LevelAccountingVerification of accounting records7707/22 · Oct/Nov 2013 · Q226 Marks

Ann buys and sells on credit. She supplied the following information for the month ended 31 May 2013. 2013 $ May 1 Trade receivables 5687 31 Credit sales 72641 Receipts from credit customers 64500 Credit notes issued to customers 8242 Cash discounts allowed 1894 Bad debts 800 Contra entry 300 The sales journal had been under-cast by $86. A cheque received and banked on 8 May from John Lee for $2300 had been returned by the bank because of insufficient funds.

(a)Prepare the sales ledger control account for the month ended 31 May 2013. Balance the account at that date and bring the balance down on 1 June 2013.[9]
(b)State three benefits of using control accounts.[6]
(c)State two sources of information for the sales ledger control account.[2]
(d)Ann was informed that John Lee was unable to pay his outstanding balance of $2300. It was agreed that he would pay 40 cents for each dollar owed and he sent a cheque on 26 June 2013 in settlement. The balance was written off as a bad debt. Prepare the general journal entry to write off the bad debt. A narrative is required.[3]
(e)Advise Ann why she should create a provision for doubtful debts.[6]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2013). The mark or mark type is shown in brackets.

[1] (a) Balance b/d $5687
[1] (a) Sales $72727 (1) (72641+86)
[1] (a) Bank $2300 (1)
[1] (a) Bank/cash $64500 (1)
[1] (a) Sales returns $8242 (1)
[1] (a) Discount allowed $1894 (1)
[1] (a) Bad debts $800 (1)
[1] (a) Contra $300 (1)
[1] (a) Balance c/d $4978 (1)
[1] (a) Balance b/d $4978 (1)of
[2] (b) Check on arithmetical accuracy of double entry (2)
[2] (b) Provides a basis for preparing financial statements (2)
[2] (b) Find total trade receivables and/or find total trade payables (2)
[2] (b) Prevents fraud/theft (2)
[2] (b) Assess staff efficiency (2)
[2] (b) Save time in producing trial balance and/or final accounts (2)
[2] (b) Find missing figures in single entry (2)
[1] (c) Sales returns journal (1)
[1] (c) Sales journal (1)
[1] (c) Cash book (1)
[1] (c) General journal/Journal (1)
[1] (c) Balance from previous debtors sales ledger control account (1)
[1] (d) Bad debts Dr $1380 (1) ($2300 - ($2300 * 0.40) = $1380)
[1] (d) John Lee Cr $1380 (1)
[1] (d) Narrative: Bad debt written off (1)
[1] (e) Concept: Prudence (1)
[2] (e) Reasons: All losses should be anticipated (2)
[2] (e) So that profits are not overstated (2)
[2] (e) So that trade receivables/current assets are not (2)
[2] (e) To prepare for debts that are likely to turn bad in the future (2)
[1] (e) Concept: Matching or accrual principle (1)
[2] (e) Reason: All known losses should be matched against revenue within the same period (2)
[2] (e) In order to calculate a true and fair profit figure for the year (2)

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