Debtors and Creditors Control Accounts Exercise

by Danie Kwexi
(Blantyre)

Before you begin: It's important when preparing for tests and exams to make sure you not only answer questions correctly but also do so at the right speed. So please make sure while attempting this exercise that you time yourself.


Difficulty Rating:
Intermediate --> Advanced

Time limit:
30 minutes


Question

The following is a list of balances relating to Phiri Properties Ltd during 2010. The company maintains a memorandum debtors and creditors ledger in which the individual account of customers and suppliers are maintained.

These were as follows:

Debit balance in debtors account 01/01/10 66,300
Credit balance in creditors account 01/01/10 50,600
Sunday credit balance on debtors ledger 724
Goods purchased on credit 257,919
Goods sold on credit 323,614
Cash received from debtors 299,149
Cash paid to suppliers 210,522
Discount received 2,663
Discount allowed 2,930
Cash purchases 3,627
Cash sales 5,922
Bad Debts written off 3,651
Interest on overdue account of customers 277
Returns outwards 2,926
Return inwards 2,805
Accounts settled by contra between debtors and creditors ledgers 1,106
Credit balances in debtors ledgers 31/12/10 815
Debit balances in creditors ledger 31/12/10 698

Required:
a) Prepare the debtors control account as at 31/12/10.
b) Prepare the creditors control account as at 31/12/10?



Solution


a)

debtors control account



b)

creditors control account


Notes on the Above


  • A memorandum debtors and creditors ledger is simply a group of the debtor and creditor accounts. "Memorandum" here means that the ledger is maintained for internal record-keeping and these accounts are not shown on the trial balance (or financial statements). These individual accounts are maintained so as to track amounts owed by and to individual customers and suppliers. In contrast, the debtors and creditors control accounts are shown in the trial balance (and financial statements).

  • Most of the entries in the debtors and creditors control accounts above should be self explanatory. Remember that debtors are our customers that owe us money, so we are talking about sales on credit here. And creditors are our suppliers that we owe money to, so we are talking about purchases on credit in that case.

  • If you didn't understand what the Sunday credit balance on debtors ledger is, don't worry. You're probably not the only one. The "Sunday" in this case is weird. If anyone has any idea what this means please add your say in a comment below.

  • The discount received and discount allowed amounts were assumed to be settlement or cash discounts received and granted for early or prompt payment. In contrast to sales or trade discounts, settlement or cash discounts are recorded in the books (shown here under the debtors and creditors control accounts).

  • Cash purchases and cash sales do not affect the debtors and creditors control accounts at all. They only affect the cash or bank T-account and the purchases and sales T-accounts.

  • Bad debts are debts that the business has recognized will not be paid. In other words, these are debtor amounts that no longer seem likely to be received. So it reduces the value of our debtors.

  • The overdue interest on our customer accounts simply must be added to the value of debtors - in other words, they owe us the interest now too.

  • Returns outwards means returns going out from our business. In other words, to our suppliers. "Returns outwards" is also known as "purchases returns" or "returns out."

  • In the same way, returns inwards means returns coming into our business. In other words, from our customer who purchased goods from us. "Returns inwards" is also known as "sales returns" or "returns in." For more information on returns in and returns out, see our tutorial on ______.

  • Accounts settled by contra between debtors and creditors ledgers was another strange one. Since it indicated "between debtors and creditors," I assumed that this was an incorrect amount in the debtors ledger (credit balance) to be transferred to the creditors ledger.

  • The unusual credit balances in debtors ledgers is like a liability balance and is more suited to the creditors ledger. So it has to be debited out of the debtors ledger and credited back into the creditors ledger.

  • Likewise, the debit balances in creditors ledger is like a debtors (asset) balance and is more suited to the debtors ledger. So it has to be credited out of the creditors ledger and debited back into the debtors ledger.


  • That's it!

    How did you like our debtors, creditors control accounts exercise? What did you think of the solution?

    Add a comment below to let us know what you think and if you have any questions.

    Best,
    Michael Celender
    Founder of Accounting Basics for Students


    Related Questions and Tutorials:

    Return to the full tutorial on Debtor and Creditor Control Accounts

    Check out our page of Full Accounting Exercises

    Comments for Debtors and Creditors Control Accounts Exercise

    Click here to add your own comments

    Looking for Answer
    by: Mr Decency

    Please how is trade discount received/allowed treated in control account or should it be disregarded when preparing control account?

    Answers
    by: Anonymous

    Please may I have the answers for the question

    i think the figure for the debtor and creditor not correct
    by: hy

    for example the amount for the balance debtor control acc is $815 on credit that mean the balance b/d in credit side for the debtor is $815 right but the answer that you giving show that the amount at the debit side of the debtor control acc right?

    Appreciation
    by: Calvin Charles

    Good question, we need proper solution or posting on this specific question.

    appreciatory complaint
    by: Anonymous

    this is absolutely a good line education, i suggest that the full format must be shown because we are not familiar with some of the transactions, therefore we find it difficult to identify the accounts suggested buy these transactions ..thank you. Vener Seveleni, Namibia

    Bill of Exchange
    by: Anonymous

    Where is bill discounted posted to in the control account?

    question
    by: Anonymous

    how do u treat dishonoured cheques while drawing controls accounts

    Appreciation
    by: Anonymous

    I do appreciate all your efforts for simplifying learning. But if possible please try your best to at least give a simplified example with answer to guide slow learners like me from an LDC (Uganda). Thanks am DAN EMMA

    ANSWER
    by: Anonymous

    debtors balancing figure is 79,011
    creditors balancing figure is 90,604

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