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264 views16 pages

RCA PCA Reconcialation

Uploaded by

Anonymous ed8Y8fCxkS
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

ARAB OPEN UNIVERSITY Session 2

Control  Accounts  and  Reconcilia1ons  


Purpose  of  control  accounts:  
• Totals of receivables and payables.
• Check the accuracies of A/R and A/P.
• To identify pacific errors (differences between
control  account  and  balances  of  
receivables/payables  ledger).  
• Control tool to verify balances between A/R o
A/P  control  account  with  individual  balances.  
© Dr. Yusuf Mohammed Nulla 2014
ARAB OPEN UNIVERSITY Session 2

Receivables  and  Payables  control  accounts  


Sales  transac1ons:  
Recording  in  Sales  and  Receivables  ledgers  
(individual  customer  entries),  and  transfers  to  
nominal  ledger  (summary  of  all  the  ledger  entrie
into  specific  accounts).  Please  see  pages  28  &  29  
an  example.  

© Dr. Yusuf Mohammed Nulla 2014


ARAB OPEN UNIVERSITY Session 2

Receivables  control  accounts  


Receivables  Control  Account  (RCA)  
Balance     Total  cash  received  (cash  
Total  sales     book)  
Total  discount  allowed  (cash  
book)  
Total  sale  return  (SRDB)  
Total  irrecoverable  receivable  
(journal)  
Contra  with  PCA      (journal)    
Balance  b/d  

© Dr. Yusuf Mohammed Nulla 2014


ARAB OPEN UNIVERSITY Session 2

Receivables  control  accounts  Reconcilia1on  


Ø  Customers  personal  accounts  in  receivables  ledger  =Balance  in  the  
receivable  control  account    
Steps  for  reconcilia1on:    
Ø  Extract,  list  and  total  the  balances  for  each  credit  customer  
personal  account  in  the  receivables  ledger  
Ø  Balance  the  receivables  control  account    
Ø  If  there  is  a  different  check  :  
ü  Errors  in  the  addi1on  of  the  amount  in  the  day  book                
ü  Errors  in  the  pos1ng  to  the  control  accounts  (total  or  
individual  acc.)  
ü  A  balance  being  omiRed  from  the  list  of  personal  accounts  
ü  A  credit  balance  being  mistakenly  listed  as  a  debit  balance  
or  vise  versa    
ARAB OPEN UNIVERSITY Session 2

Receivables  control  accounts  Reconcilia1on  


   
Steps  for  reconcilia1on:    
Ø  Adjust  the  receivables  control  account  
Ø  Prepare  a  statement  showing  any  adjustments  to  the  
list  of  personal  account  balances    
Ø  Errors  should  be  corrected  
 

© Dr. Yusuf Mohammed Nulla 2014


ARAB OPEN UNIVERSITY Session 2

Payables  control  accounts  


Payables  Control  Account  (RCA)  
Total  money  paid  (CB)   Balance    
Total  discounts  received  (CB)   Total  purchase  (PDB)    
Total  purchase  returns  (PRDB)    

Balance  b/d  
 

© Dr. Yusuf Mohammed Nulla 2014


ARAB OPEN UNIVERSITY Session 2

Payables  control  accounts  Reconcilia1on  


Ø  Customers  personal  accounts  in  payables  ledger  =Balance  in  the  payable  
control  account    
Steps  for  reconcilia1on:    
Ø  Extract,  list  and  total  the  balances  on  each  creditor’s    account  in  the  
payable  ledger  
Ø   Balance  the  payables  control  account    
Ø  If  there  is  a  different  check  :  
ü  Errors  in  the  addi1on  of  the  amount  in  the  day  book                
ü  Errors  in  pos1ng  to  the  control  accounts  (total  or  individual  acc.  figure)  
ü  Error  in  the  addi1on  of  the  cash  bok  column  rela1ng  to  the  control  
account    
ü  A  balance  being  omiRed  from  the  list  of  personal  account  
ü  A  credit  balance  being  mistakenly  listed  as  a  debit  balance  or  vise  versa    
 
ARAB OPEN UNIVERSITY Session 2

Steps  for  Reconcilia1on:    


Ø  Adjust  the  payables  control  account  
Ø  Prepare  a  statement  showing  any  adjustments  to  the  list  of  personal  
account  balances    
Ø  Errors  should  be  corrected  
Supplier  Statement  Reconcilia1on  
Ø   Tick  off  the  items  that  appear  in  both  the  suppliers  statement  and  the  
suppliers  account  in  the  payables  ledger  
Ø  Agree  the  opening  balance  on  the  suppliers  statements  with  the  invoices  
to  which  the  opening  balance  pertains  in  the  payables  ledger    
Ø  Allocate  payments  to  invoices  aTer  allowing  for  any  credit  notes  
Ø  Iden1fy  any  differences    

 
Receivable  Control  Account  Reconcilia1on  
 
Anaf  prepared  her  receivables  control  account  for  April  2014  as  follows.  
Receivables  Control  Account  (RCA)  
   £      £  
Balance  b/d  as  at  1April  2014    435,775  Total  Cash  received  CB  759,310  
Sales  Revenue  SDB  632,440  Total  discounts  allowed  CB  2,300  
     Total  sales  returns  SRDB  1,500  
     Total  irrecoverable  receivables  Journal  2,800  
     Contra  with  PCA  Journal  770  
     Balance  c/d  as  at  30April    301,535  
   1,068,215      1,068,215  
Balance  b/d  1May    301,535        
 
The  total  of  the  balances  in  the  receivables  ledger  accounts  was  £319,[Link]  
invesOgated  the  causes  of  the  difference  with  the  balance  on  the  receivables  control  
account  and  discovered  the  following  errors.  
(a)The  sales  day  book  total  has  been  overcast  by  £1,[Link],  the  sales  account  and  
receivables  control  account  have  been  overstated  by  £1,900.  
(b)Sales  for  the  period  amounOng  to  £20,000  have  been  omiUed  from  the  receivables  
control  account  and  the  sales  account.  
(c)Cash  received  of  £1000  has  been  incorrectly  entered  into  Harry  Mankiw’s  personal  
account  in  the  receivables  ledger  as  £[Link]  totals  posted  to  the  cash  and  receivables  
control  accounts  were  correct.  
 
 
 
 
(d)Cash  received  of  £340  has  been  mistakenly  entered  into  Delia  Schmidt’s  personal  
account  in  the  receivables  ledger  as  £[Link]  cash  and  receivable  control  accounts  
have  been  correctly  posted.  
(e)Discounts  allowed  for  a  total  of  £700  have  been  recorded  in  the  individual  personal  
accounts  but  not  in  the  discounts  allowed  account  and  receivables  control  account  in  
the  nominal  ledger.  
(f)Manfred  Messer’s  account  in  the  receivables  ledger  has  been  overcast  by  £[Link]  
nominal  ledger  accounts  have  been  correctly  posted.  
(g)Sales  returns  of  £200  have  not  been  included  in  the  sales  returns  and  receivables  
control  accounts.  
(h)A  contra  entry  with  the  payables  control  account  of  £130  represenOng  an  account  
seUled  with  a  supplier  has  been  omiUed  from  the  nominal  ledger  accounts.  
Prepare  a  corrected  receivables  control  account.  Also  prepare  a  statement  of  
adjustments  to  the  personal  account  balances  in  the  receivables  ledger.  
 
Payable  Control  Account  Reconcilia1on  
Below  is  an  extract  from  the  payables  control  account  of  Lavender’s  Flower  Shop  as  at  31  
December  20X2      
Extract  from  payables  control  account  for  Lavender’s  Flower  Shop.  
 £  
Trade  Payables  as  at    January  20X2  130,000  
Credit  Purchases  960,000  
Payments  made  to  credit  suppliers  880,000  
Discounts  received  10,000  
The  total  of  the  payables  ledger  balances  as  at  31  December  20X2  was  £208,[Link]  were  
only  credit  balances  on  the  individual  supplier  accounts.  
The  accountant  checked  all  the  balances  and  discovered  the  following  errors.  
(a)Goods  cosOng  £1,200  have  been  omiUed  from  supplier  Benzoa’s  personal  account.  
(b)Purchases  of  £9,000  have  been  omiUed  from  the  control  account.  
(c)  £800  of  discount  received  from  supplier  Walton  for  December  2008  has  not  been  
entered  in  the  control  account,  but  his  personal  account.  
 
(d)The  credit  side  of  supplier  Merlin’s  personal  account  has  been  undecast  by  £100.  
(e)A  cash  payment  of  £3,000  to  supplier  Williamson  has  been  credited  to  his  
personal  account..  
(f)A  bank  payment  of  £9,500  to  supplier  Tuvoc  has  been  omiUed  from  his  personal  
account  and  has  not  been  posted  to  the  payables  control  account  either.  
(g)Supplier  Smith’s  credit  balance  of  £3,400  has  not  been  included  in  the  list  of  
balances.  
(h)The  entry  for  a  laser  printer  purchased  from  the  office  supplies  Giant  cosOng  
£2,700  should  not  have  appeared  in  the  payables  ledger  because  it  had  already  been  
paid  for  in  cash.  
(i)A  contra  entry  between  the  receivables  and  payables  ledger  of  £1,400  has  not  
been  entered  in  the  control  account.  
[Link]  the  payables  control  account  as  at  31  December  20X2  before  any  
correcOons.  
[Link]  the  corrected  payables  control  account.  
[Link]  a  statement  showing  the  necessary  correcOons  to  the  list  of  account  
balances  in  the  payables  ledger  as  extracted  as  at  310December20X2.  

Common questions

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Contra entries, which offset amounts between receivables and payables, affect reconciliation by creating balance discrepancies if omitted. The recommended response is to correct this by ensuring the contra entry is properly recorded in both the control accounts and the nominal ledger, hence reconciling the accounts accurately .

If sales returns are missing, the necessary adjustments include adding the missing sales return amount to the sales returns and receivables control accounts. This ensures the total sales returns reflect all returned items and the receivables balance matches the adjusted amount, correcting any understatement due to the omission .

The reconciliation process involves extracting and listing balances from individual creditor accounts, checking for discrepancies such as omitted purchases, incorrect discount postings, undercasting entries, mis-credited payments, omitted bank transactions, and incorrect contra entries. It also requires preparing statements reflecting necessary corrections and adjustments to resolve these discrepancies .

A discount not recorded in the control account but captured in personal accounts creates discrepancies as the control account will reflect a higher liability or asset than actual. Correction involves posting the discount amount in the control account to align it with the nominal ledger, thus ensuring accuracy in the total discount allowed or received .

Supplier statements aid in reconciliation by providing a matching reference against recorded transactions in the payables ledger. The process involves ticking off items that appear on both the supplier statement and ledger, ensuring the opening balance agrees with invoices, allocating payments to invoices after credit notes, and identifying any differences .

The primary purpose of maintaining control accounts is to keep track of the total receivables and payables, to verify the accuracy of the accounts receivable (A/R) and accounts payable (A/P), and to identify particular errors that might exist between control accounts and the balances of receivables/payables ledgers .

Control accounts help in the reconciliation process by allowing businesses to match the total balances in the receivables and payables ledgers with those in the control accounts. They enable the identification and correction of discrepancies by ensuring that personal account balances agree with controls, highlighting errors such as additions errors, mispostings, and incorrect balances .

An overcast sales day book results in the receivables control account being overstated. The corrective action includes reducing the overstated amount (equal to the overcast figure) from the sales and receivables control accounts. This correction aligns the recorded sales with actual sales transactions, eliminating excess reporting .

Common errors identified during reconciliation include overcasting or undercasting of sales day book totals, omissions of sales from receivables control accounts, mis-postings of cash receipts, missing discounts in nominal accounts, overcasting individual accounts in the ledger, and omitted contra entries .

To rectify this error, one must debit the supplier’s personal account to remove the erroneous credit entry and credit the correct account showing the payment. The correction involves reposting the transaction to its correct ledger account and adjusting the control account balance to reflect the accurate transaction .

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