Posting Items to Sales Ledger Control

Tnanzz

Hi. I have come across a question in the Green Light tests, and would be grateful for some clarification on the answer please. There is an item listed in the sales ledger control account - 'amounts refunded in cash to credit customers'. I indicated this would be a credit in the control account, but the correct answer apparently is a debit. This doesn't make sense to me as I would expect a refund to a customer would reduce my cash asset? The full question is attached. Help please?

Thanks

EM12345

Hi. This caught me out also. The amount is refunded in cash so the bank account has to be credited (reduction in an asset). The double entry is that the Sales ledger control account needs to be debited. Unlike a credit note, which would be a credit entry in the SLCA (as it reduces the asset/ the amount owed), the cash refund does not reduce the money owed by the customer and is therefore a debit. I hope that helps.

Tnanzz

Thanks EM12345. In other words the refund is treated as an expense, hence entered as a debit.

EM12345

Exactly Tnanzz. Good luck with the exam. I found the green light tests really help with revision.