Control Accounts
Reconciliation
Control accounts
• are general ledger accounts that summarize a
large number of transactions. As such they are
part of the double entry system.
• They are used to prove the accuracy of the
ledger accounting system.
• They are mainly used with regard to
receivables and payables balances.
Accounting entries for credit sales and purchases
• When a company transfers the daily total of the
sales book into the general ledger the double
entry is:
Dr Receivables ledger control account
Cr Sales revenue.
• When they transfer the total of the purchase
day book the double entry is:
Dr Purchases
Cr Payables ledger control account
Receivables ledger control account
Balance b/f
X
Balance b/f
X
Credit sales (SDB)
X
Sales returns (SRDB)
X
Bank (CB)
X
Bank (CB) dishonoured cheques
X
Irrecoverable debts (journal)
X
Bank (CB) refunds of credit balances
X
Discounts allowed
X
Interest charged
X
Contra
X
Balance c/f
X
Balance c/f
X
Balance b/f
____
____
X
X
____
____
X
Balance b/f
X
Payables ledger control account
Balance b/f
X
Balance b/f
X
Bank (CB)
X
Credit purchases (PDB)
X
Purchases returns (PRDB)
X
Bank (CB) refunds of debit
balances
X
Discounts received
X
Contra
X
Balance c/f
X
Balance c/f
X
Balance b/f
____
____
X
X
____
____
X
Balance b/f
X
Contra entries
• The situation may arise where a customer is also
a supplier. Instead of both owing each other
money, it may be agreed that the balances are
cancelled.
• The double entry for this type of contra is:
Dr Payables ledger control account
Cr Receivables ledger control account
• The individual receivable and payable
memorandum accounts must also be updated to
reflect this.
Credit/debit balances in the wrong
account
• Sometimes the receivables ledger control account
may show a credit balance, i.e. we owe the
customer money. These amounts are usually
small and arise when:
•
The customer has overpaid.
•
Credit notes have been issued for fullypaid-for goods.
•
Payment is received in advance of
raising invoices.
• The payables ledger control account may show a
debit balance for similar reasons.
Memorandum accounts
• While maintaining control accounts most businesses
will maintain what is referred to as a 'memorandum.'
• This is a separate list of individual receivable and
payable amounts due from each customer and to each
supplier, respectively.
• This simple 'list of balances' is used as a record so that
companies know how much each customer is due to
pay and how much they are due to pay each supplier.
• This assists with credit control and cash flow
management.
Control account reconciliation
• A key control operated by a business is to
compare the total balance on the control
account at the end of the accounting period
with the total of all the separate
memorandum balances.
• In theory they should be identical. This is
referred to as a control account reconciliation.
Control account reconciliation
Receivables ledger control account
$
$
Balance given by the examiner
X
Adjustments for errors
X
Adjustments for errors
X
Revised balance c/f
X
––
––
X
X
Reconciliation of individual receivables balances with control account balance
$
Balance as extracted from list of receivables
Adjustments for errors
X
X/(X)
–––––
Revised total agreeing with balance c/f on
control account
X
Control account reconciliation
Alston's payables ledger control account is an integral part of the double entry system. Individual
ledger account balances are listed and totalled on a monthly basis, and reconciled to the control
account balance. Information for the month of March is as follows:
(1)Individual ledger account balances at 31 March have been listed out and totalled $19,766.
(2)The payables ledger control account balance at 31 March is $21,832.
(3)On further examination the following errors are discovered:





The total of discount received for the month, amounting to $1,715, has not been entered
in the control account but has been entered in the individual ledger accounts.
On listing-out, an individual credit balance of $205 has been incorrectly treated as a
debit.
A petty cash payment to a supplier amounting to $63 has been correctly treated in the
control account, but no entry has been made in the supplier's individual ledger account.
The purchases day book total for March has been undercast (understated) by $2,000.
Contras (set-offs) with the receivables ledger, amounting in total to $2,004, have been
correctly treated in the individual ledger accounts but no entry has been made in the
control account.