Correction of Errors in Control Accounts

1. Correction of Errors in Control Accounts

2. Bookkeeping errors are more easily detected if control accounts are used in businesses. This is because control accounts help to localise errors and, if regular checks are made, there is less work to do in searching for errors when the trial balance is produced. How are errors identified in control accounts?

3. What entries if any have been made in the accounting records? What entries should have been made? What entries are required to correct the error? Ask the following questions about the bookkeeping errors

4. Has the error affected the sales/purchases ledger/accounts? Has the error affected the control account? About the records affected

5. A transaction that is not entered in a book of prime entry will also be omitted from both the individual account and the control account. A transaction that is entered incorrectly in the book of prime entry will be repeated in both the individual account and the control account. A casting error (addition) in the book of prime entry will affect the control account but not the individual account. If a transaction is misposted from the prime record to the individual account, the control account is not affected. Correction of errors

6. Rachel Valley has provided the following information for the year ended 31 March 2008, in reference to her purchases ledger control account. Credit balance b/d 41,000 Totals for the year 1 April 2007 to 31 March 2008 Credit purchases 360,000 Cheques paid to creditors 317,500 Purchases returns 12,500 Discounts received 4,150 Contra sales ledger 3,700 The purchases ledger control account did not agree with the balance shown in the schedule of creditors of £64,150. The following errors were discovered:

7. The discounts received column in the cash book had been undercast by £300. No contra entry had been made in the creditors’ account in the purchases ledger for goods to the value of £450. The entry had been correctly dealt with in the purchases ledger control account. The purchases journal had been undercast by £2,100. A credit purchase of £1,250 to Joe Cuther had not been entered in the purchases ledger.

8. Prepare a corrected purchases ledger control account for the year ended 31 March 2008. Prepare a statement to reconcile the total of the schedule of creditors with the corrected balance in the purchases ledger control account.

9. Error 1 – A casting error, therefore it would affect the control account only. Error 2 – This would affect the schedule of creditors only as the entry in the control account is correct. Error3 – A casting error which would affect the control account only. Error 4 – An omission from the purchases ledger therefore this would affect the schedule of creditors.

11. £ Original balance 64,150 Error 2 contra (450) Error 4 purchases 1,250 64,950 The balance on the control account equals the corrected balance on the schedule of creditors. Corrected schedule of creditors

12. Remember entries in control accounts consist of totals of the books of prime entry (journals, cash books, etc.) Control accounts enable trial balances to be prepared quicker as they provide totals. Control accounts help to identify the ledgers in which there are errors contributing to a trial balance difference. When an examination question gives a list of prices of purchases and the amount of TRADE discount. Show the 'net' figure in the control account. Remember which side entries are made on the control account. Tips

13. Tasks Complete task sheet and OCR exam question.