Q1.Explain two ways in which control accounts can be used in small business. Please note the owner is not operating full double entry system.
Q2.Explain two limitations to the usefulness of control accounts. In small business, if the owner is not operating full double entry system.
Q3.Explain two ways in which the going concern principle affects the value of work in progress.
Q4.Explain two ways in which the prudence principle affect the value of work in progress.
Q1.Explain two ways in which control accounts can be used in small business. Please note the owner is not operating full double entry system
First of all, I'll give you definition for control account:
A control account has been defined as "A total account inserted in a ledger (or section of accounts) to make it self-balancing. Where debits or credits are posted to individual ledger accounts, their total is posted to the control account. The balance of the account should equal the total of the balances on the individual accounts".
One of the example i will give you for how control account can be used in small business is after preparing the financial statements, reverse the accruals and the business ownder will be ready for entries the following month. He/she can enter his/her gross payroll, payroll deductions and the net amount in the check register. Give his/her employees a payroll slip showing all the facts and maintain subsidiary payroll sheets with all the information as to each employee.
With these individual payroll records and the control accounts in the General Ledger the onwer have all the information necessary to complete the various payroll tax reports and returns as they come due.
Another example is using Accounts payable ledgers. Accounts payable ledgers will help you (the business ownder) control your expenditures and payables. If you maintain accurate payable ledgers, it will be easy for you to double check the bills you get from your suppliers.
At the end of the month, reconcile your accounts payable ledgers with the accounts payable control account. The control account is the total accounts payable balance from your general ledger. The beginning accounts payable total, plus purchases on account during the month, minus payments on account during the month, should equal the ending accounts payable total.
Compare this amount to the sum of the individual ...
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