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Difficulty: HardPurchases Ledger Control Account

Match each transaction or accounting adjustment on the left with its correct entry treatment in the Purchases Ledger Control Account on the right.

  • Cheque paid to a supplier subsequently dishonoured by the bankCredited to reinstate the liability previously cancelled by the failed payment
  • Contra entry set-off transferred to the Sales LedgerDebited to reduce trade payables by settling mutual indebtedness across ledgers
  • Interest charged by a trade creditor on an overdue accountCredited to increase the total outstanding debt owed to trade creditors
  • Discount received granted by a creditor for prompt paymentDebited to reduce the outstanding balance payable to trade suppliers

Answer

Dishonoured cheques are credited to reinstate liability; contra entries are debited to settle mutual indebtedness; interest charged by suppliers is credited to increase amounts owed; and discounts received are debited to reduce trade payable balances.
Items that increase trade payables (such as interest charged by suppliers and dishonoured payment cheques) are credited to the Purchases Ledger Control Account. Items that decrease trade payables (such as discounts received and contra set-off transfers) are debited to the control account.

Step-by-Step Solution

1
Analyze the nature of Purchases Ledger Control Account balance
The control account maintains a credit balance representing total trade liabilities (creditors).
Increases in liabilities are credited, while decreases in liabilities are debited.
2
Evaluate dishonoured cheque and interest charged
Both items increase the liability owed to trade creditors.
A dishonoured cheque cancels the original reduction in debt upon payment failure, and interest adds penalty charges to the debt; thus, both must be credited.
3
Evaluate contra set-offs and discounts received
Both items decrease the liability owed to trade creditors.
Contra set-offs discharge debt against sales receivables, and discounts received lower the payable amount; thus, both must be debited.

Key Concept

Purchases Ledger Control Account Debit and Credit Posting Principles
Estimated Time:2m 0s
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Topics

Purchases Ledger Control Account

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