The following information was extracted from the books of Abbas Trading for the year ended 31 December 2025. Item $ Trade payables at 1 January 2025 14 200 ...
Question 1 Report
The following information was extracted from the books of Abbas Trading for the year ended 31 December 2025.
| Item | $ |
|---|---|
| Trade payables at 1 January 2025 | 14 200 |
| Credit purchases | 42 800 |
| Payments to trade payables | 39 600 |
| Discount received | 1 280 |
| Purchases returns | 1 950 |
| Set-off/contra with sales ledger | 630 |
(a) Prepare the purchases ledger control account for the year ended 31 December 2025. [10]
(b) State the source of each of the following totals used in the purchases ledger control account.
| Item | Source |
|---|---|
| Credit purchases | |
| Payments to trade payables | |
| Discount received | |
| Purchases returns |
[4]
(c) State the double entry for discount received of $1 280. [2]
(d) State one reason why the balance on the purchases ledger control account might not agree with the total of balances in the purchases ledger. [2]
(e) Explain why payments to trade payables appear on the debit side of the purchases ledger control account. [2]
Answer Details
(a) Purchases Ledger Control Account - Year ended 31 December 2025
The purchases ledger control account (PLCA) is a summary account with a credit balance, since trade payables represent amounts the business owes. Items that reduce the amount owed are debited; items that increase what is owed are credited.
| Purchases Ledger Control Account | |||
|---|---|---|---|
| Debit | Credit | ||
| Bank (payments) | 39 600 [1] | Jan 1 Balance b/d | 14 200 [1] |
| Discount received | 1 280 [1] | Credit purchases (Purchases day book) | 42 800 [1] |
| Purchases returns | 1 950 [1] | ||
| Set-off / contra | 630 [1] | ||
| Dec 31 Balance c/d | 13 540 [1] | ||
| Total | 57 000 [1] | Total | 57 000 [1] |
| Jan 1 Balance b/d | 13 540 | ||
Closing balance: $14 200 + $42 800 - $39 600 - $1 280 - $1 950 - $630 = $13 540 [1]
The set-off (contra) entry arises when a customer is also a supplier: the amounts owed to and by the same person are offset rather than settled in cash.
(b) Sources of the totals
| Item | Source |
|---|---|
| Credit purchases | Purchases day book [1] |
| Payments to trade payables | Cash book (bank/credit column on the payments side) [1] |
| Discount received | Cash book (discount received column) [1] |
| Purchases returns | Purchases returns day book [1] |
(c) Double entry for discount received of $1 280
| Account | Dr ($) | Cr ($) |
|---|---|---|
| Purchases ledger control account | 1 280 [1] | |
| Discount received account | 1 280 [1] |
Discount received reduces the amount owed to suppliers (debit PLCA) and is recognised as income (credit discount received).
(d) One reason the balance might not agree
An error in posting to an individual creditor's account in the purchases ledger that does not affect the control account - for example, a payment posted to the wrong supplier's account. [1] The individual balances would be incorrect (one too high, another too low) even though the control account total is correct. [1]
(e) Why payments appear on the debit side
The PLCA normally carries a credit balance representing total amounts owed to suppliers. [1] When the business makes a payment, it reduces the amount owed, so the payment is debited to decrease the credit balance. This follows the rule that to reduce a credit balance, you debit the account. [1]
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