Control Accounts question, adapted from Zhong Hua Sec 2006 POA Prelim (removed those portions no longer in new syllabus). Sec 4E/5NA POA students should now be covering or having completed Control Accounts.
Zhen Kai, a trader, has not kept accounts on the double entry system. However the following particulars are available for the year ended 31 July 2006:
$
Sales Ledger Control Account, 1 August 2005 18000
Purchases Ledger Control Account, 1 August 2005 17890
Stock, 1 August 2005 530
Stock, 31 July 2006 640
Total receipts from customers
(include $200 received from a debtor who was written off two years ago) 102100
Receipts from cash sales 8700
Payments to creditors 62100
Purchases for cash 1500
Credit notes sent 1700
Credit notes received 2300
Discounts received from suppliers 1000
Discounts allowed on credit customers 250
Bad debts written off 1800
Customers' cheques returned unpaid by bank 3400
Increase in Provision for Doubtful Debts 1200
Interest charged to customers on overdue accounts 400
Debit balance in sales ledger set off against purchases ledger balance 50
Credit balance in purchases ledger set off against sales ledger balance 100
Sales Ledger Control account, 31 July 2006 13000
Purchases Ledger Control account, 31 July 2006 16760
Required:
1. Prepare the Sales Ledger Control account and the Purchases Ledger Control account for the year ended 31 July 2006, showing clearly the credit sales and credit purchases.
2. Debtors represent funds tied up which the firm cannot use directly. Suggest 2 solutions to this problem, whereby a firm can still give credit to its customers but, at the same time, have more resources for spending.