Prepare the Control Accounts for the Debtors and Creditors of Firmware Company for the year ending December 31, 2008.

Here's the solution to Question 2. a) Prepare the Control Accounts for the Debtors and Creditors of Firmware Company for the year ending December 31, 2008. Step 1: Calculate relevant figures for the Debtors Control Account. Opening Balance (Debit): \13,250 Credit Sales: \178,440 Cash from customers: Total receipts \94,220 minus bad debt recovered \210 (Note 1) = \94,010. Contra Entry (R. Hoyte / Sawyer Ltd): Firmware owed Sawyer Ltd \1,800. Sawyer Ltd owed Firmware \1,800 - \1,360 = \440. The contra entry is for the lower amount, which is \440 (Note 2). This reduces both debtors and creditors. Closing Credit Balance: \95 (Note 3). This represents overpayments by debtors. Total Debtors Control Account |l|l|r|l|l|r| Date & Particulars & Amount (\) & Date & Particulars & Amount (\) \\ Jan 1 & Balance b/d & 13,250 & Dec 31 & Cash & 94,010 \\ Dec 31 & Credit Sales & 178,440 & Dec 31 & Discounts Allowed & 2,310 \\ Dec 31 & Refunds to customers & 104 & Dec 31 & Credit Notes Issued & 2,020 \\ Dec 31 & Dishonoured Cheques & 308 & Dec 31 & Bad Debts Written Off & 27,152 \\ Dec 31 & Balance c/d (Cr. Bal.) & 95 & Dec 31 & Contra (Sawyer Ltd) & 440 \\ & & & Dec 31 & Balance c/d (Dr. Bal.) & 66,265 \\ & Total & 192,197 & & Total & 192,197 \\ Jan 1 & Balance b/d (Dr. Bal.) & 66,265 & & & \\ & & & Jan 1 & Balance b/d (Cr. Bal.) & 95 \\ Step 2: Calculate relevant figures for the Creditors Control Account. Opening Balance (Credit): \22,320 Credit Purchases: Total Purchases \134,092 minus Cash Purchases \7,220 = \126,872. Contra Entry (Sawyer Ltd): \440 (as calculated in Step 1). Closing Debit Balance: \165 (Note 3). This represents overpayments to creditors. Total Creditors Control Account |l|l|r|l|l|r| Date & Particulars & Amount (\) & Date & Particulars & Amount (\$) \\ Dec 31 & Cash & 106,200 & Jan 1 & Balance b/d & 22,320 \\ Dec 31 & Discounts Received & 1,252 & Dec 31 & Credit Purchases & 126,872 \\ Dec 31 & Credit Notes Received & 1,480 & Dec 31 & Interest Charged & 120 \\ Dec 31 & Contra (Sawyer Ltd) & 440 & Dec 31 & Balance c/d (Dr. Bal.) & 165 \\ Dec 31 & Balance c/d (Cr. Bal.) & 40,105 & & & \\ & Total & 149,477 & & Total & 149,477 \\ Jan 1 & Balance b/d (Dr. Bal.) & 165 & Jan 1 & Balance b/d (Cr. Bal.) & 40,105 \\ b) Identify two (2) ways in which a business may benefit from the use of control accounts. Control accounts provide a check on the accuracy* of the individual debtors' and creditors' ledger accounts, helping to identify errors. They allow for division of labor, as different clerks can maintain the control accounts and the individual subsidiary ledgers, which can also help in fraud prevention*. c) Identify two (2) examples that would lead to a debit balance on the purchases ledger control account. An overpayment* made to a supplier. Returns outwards* made to a supplier after the invoice has already been fully paid.