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Difficulty: HardContra Entries and Set-offs

Emeka Global Ventures operates a dual ledger system and maintains control accounts for its business transactions. For the month of May 2026, the following balances and transactions were extracted from the accounting records:

- Opening credit balance on Purchases Ledger Control Account: N245,000\text{N}245,000
- Opening debit balance on Purchases Ledger Control Account: N3,500\text{N}3,500
- Credit purchases for the month: N480,000\text{N}480,000
- Cash paid to trade creditors: N390,000\text{N}390,000
- Cheques paid to trade creditors: N115,000\text{N}115,000
- Returns outwards: N18,500\text{N}18,500
- Cash discounts received from suppliers: N12,000\text{N}12,000
- Interest charged by suppliers on overdue accounts: N4,200\text{N}4,200
- Set-off (contra entry) between sales ledger and purchases ledger: N28,000\text{N}28,000
- Closing debit balance on Purchases Ledger Control Account at 31st May 2026: N2,000\text{N}2,000

What is the closing credit balance of the Purchases Ledger Control Account at 31st May 2026 in Naira?

Answer: 164200 Naira

Answer

The closing credit balance of the Purchases Ledger Control Account at 31st May 2026 is N164,200\text{N}164,200.
A contra entry (set-off) occurs when an entity is both a customer and a supplier. Setting off accounts reduces both the amount owed by debtors and the amount owed to creditors. In the Purchases Ledger Control Account (which normally carries a credit balance), a set-off must be debited to decrease the liability. Taking total credit items (N245,000+N480,000+N4,200+N2,000=N731,200\text{N}245,000 + \text{N}480,000 + \text{N}4,200 + \text{N}2,000 = \text{N}731,200) and subtracting total debit items including the contra set-off (N3,500+N390,000+N115,000+N18,500+N12,000+N28,000=N567,000\text{N}3,500 + \text{N}390,000 + \text{N}115,000 + \text{N}18,500 + \text{N}12,000 + \text{N}28,000 = \text{N}567,000) gives the correct closing credit balance of N164,200\text{N}164,200.

Step-by-Step Solution

1
Sum all items that increase trade payables (credit entries) plus the closing debit balance
Total Credit Side = N245,000+N480,000+N4,200+N2,000=N731,200\text{N}245,000 + \text{N}480,000 + \text{N}4,200 + \text{N}2,000 = \text{N}731,200
Credit purchases and interest charged increase liability to suppliers, while the closing debit balance is placed on the credit side as a balancing figure.
2
Sum all items that decrease trade payables (debit entries) including opening debit balance and contra set-off
Total Known Debit Entries = N3,500+N390,000+N115,000+N18,500+N12,000+N28,000=N567,000\text{N}3,500 + \text{N}390,000 + \text{N}115,000 + \text{N}18,500 + \text{N}12,000 + \text{N}28,000 = \text{N}567,000
Payments, returns, discounts, and contra entries reduce trade payables liability and must be debited to the Purchases Ledger Control Account.
3
Deduct the total known debit side entries from the total credit side to determine the closing credit balance
Closing Credit Balance = N731,200−N567,000=N164,200\text{N}731,200 - \text{N}567,000 = \text{N}164,200
The difference between total credit items and total debit items represents the remaining net liability owed to suppliers.

Key Concept

Contra Entries and Set-offs in Control Accounts
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Topics

Contra Entries and Set-offs

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