Explanation

The “Sales ledger ₦1,200” entry is a contra entry, which occurs when a business has both bought from and sold to the same company. This situation creates a set-off opportunity where mutual debts can be cancelled against each other.

Here is how it works: Suppose Company X is both a supplier (we buy from them) and a customer (they buy from us). If we owe them ₦5,000 for purchases but they owe us ₦1,200 for sales, we can offset these amounts instead of making separate payments.

The ₦1,200 appears on the debit side of the Purchase Ledger Control Account because it reduces what we owe to suppliers. The same ₦1,200 would appear on the credit side of the Sales Ledger Control Account, reducing what customers owe us.

This entry represents the amount due from the supplier in their capacity as our customer. By netting the amounts, only the difference needs to be settled in cash. This is an efficient way to handle business relationships where companies trade with each other.