Reconciliation task -

Weg1993012

Hi guys,
I have been given a task to do regarding reconciliations. Would anyone be able to help me to solve the below task with explenation please?

Hercules Ltd. sells bathroom fittings on credit to most of its customers. In order to control its debt collection system, the company maintains a trade receivables ledger control account. In preparing the accounts for the year to 31 July 2019 the accountant discovers that the total of all the personal accounts in the trade receivables’ ledger amounts to total £ 12,802 whereas the control account balance discloses a balance of £ 12,550.
Upon investigation the following errors were discovered:
• Sales for the week ending 27 March 2019 amounting to £ 850 had been omitted from the control account
• An account balance of £ 300 had not been included in the list of balances.
• Cash received of £ 750 had been entered in a personal account as £ 570.
• Discounts allowed totaling £ 100 had not been entered in the control account.
• A personal account balance had been undercast by £ 200
• A contra item of £ 400 with the trade payables ledger had not been entered in the control account.
• A bad debt of £ 500 had not been entered in the control account
• Cash received of £ 250 had been debited the personal account
• Discounts received of £ 50 had been debited to a customer’s ledger account
• Returns inwards valued at £ 200 had not been included in the control account
• Cash received of £ 80 had been credited to a personal account as £ 8
• A cheque for £ 300 received from a customer had been dishonored by the bank, but no adjustment had been made in the control account.
Required:
1) Prepare a corrected trade receivables control account, bringing down the amended balance at 31 July 2019
2) Prepare a statement showing the adjustments that are necessary to the list of personal account balances so that it reconciles with the amended control account


Thank you !!

Pian32

Hi Weg

So in reconcilliation questions I like to take a couple of steps.

1. Check the actual question : - In this question the question is broken into 2 parts rather than gong straight from one to the other sometimes you'd just have reconcile
2. List the errors and what needs to be done to correct them :- Don't worry about where they fit in the reconcilliation yet, find out what the error is, which account it effects and how to correct it.
3. Apply the corrections to the relevant parts :- Here the account it split so should be easier in some respects
4. Check your answer :- Can you go from one figure to the using the corrections you've listed (remember entries are reversed when applied to the opposite account)

1, We need to go from the current receiveables to an ammended amount and then reconcile against the personal ledger

2.

• Sales for the week ending 27 March 2019 amounting to £ 850 had been omitted from the control account:
Control Account - DR £850
• An account balance of £ 300 had not been included in the list of balances.
Personal Account - DR £300
• Cash received of £ 750 had been entered in a personal account as £ 570.
Personal Account - CR (750-570) = £180
• Discounts allowed totaling £ 100 had not been entered in the control account.
Control Account - CR £100
• A personal account balance had been undercast by £ 200
Personal Account - DR £200
• A contra item of £ 400 with the trade payables ledger had not been entered in the control account.
Control Acccount - CR £400
• A bad debt of £ 500 had not been entered in the control account
Control Account - CR £500
• Cash received of £ 250 had been debited the personal account
Personal Account - CR £500 (250 once to remove the error and then again to add the correct figure)
• Discounts received of £ 50 had been debited to a customer’s ledger account
Personal Account - CR £ 50 (received balance means its not to do with the customer ledgers at all)
• Returns inwards valued at £ 200 had not been included in the control account
Control Account - CR £200
• Cash received of £ 80 had been credited to a personal account as £ 8
Personal Account - CR (80 - 8) = £72
• A cheque for £ 300 received from a customer had been dishonored by the bank, but no adjustment had been made in the control account.
Control Account - DR £300

3.
1)
12,550 + 850 - 100 - 400 - 500 - 200 + 300 = £12,500
2)
12,802 +300 - 180 + 200 - 500 - 50 - 72 = £12,500

For step 4 you should be able to see how it works from 3. In the exam however you may have laid things out differently so can be good to double check.

Hope this helps and if you need clarification I'll be happy to give it.

Weg1993012

Hello Pian

First of all, thank you so much for clarification and explanation. It turns out that I have made a mistake just once, as I wasnt sure how to correct an error where "an account balance of 300 had not been included in the list of balances" - can that be explained please?

Also, would you be able to clarify more point 3 in your calculations ?

Thank you

Pian32

Hi Weg

No problem. The list of balances is the list of personal accounts so if one is missed it will have reduced the total by the missing amount. To correct it it will need to be added in.

For Step 3 I split the accounts up by whether it was a Control account correction or a personal account correction based on the requirements in the question.

1) This wanted you to go from the incorrect Control balance of £12,550 and find the correct balance.

To do this I added all the Control Account Debit (DR) corrections to the initial amount and subtracted the Credit (CR) ones.

2) Wanted you to adjust the personal accounts to reconcile with the corrected control figure.

To do this I added the Personal Account Debit (DR) Corrections to the initial amount (12,802) and subtracted the credit ones.

If I was showing workings in an exam I'd use a table but the formatting in the chat box doesn't agree with that here.
Rough example below

Heading : £
Initial Balance : 12550
Add
Omission from Control Account : 850
Rejected Cheque : 300
Less
Discounts : 100
Contra : 400
Bad Debt : 500
Returns : 200

Balance : 12500

Hope this is clearer

Weg1993012

Hi Pian,
Thank you for your explanation. It is much clearer.
Regards