Principles
of Accounts
Control Systems and
The Control Account
Learning Outcomes:
In this lesson, you will learn about:
● The purpose of control accounts
● How they prepared
● The sources of information for control accounts
● The construction of accounts receivable and accounts
● The significance of balances on control counts
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Control Systems, and the Control Accounts
Control Accounts
 It is possible to check the arithmetical accuracy of the
sales ledger and purchases ledger by using control
accounts.
 Control accounts summarizes the entries in the sales
and purchase ledgers.
 The totals of the sales and purchases general ledgers
accounts should equal the totals of the balance of the
individual accounts in the sales and purchases
ledgers.
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Key Terms
 Control account: a process for checking entries in the
purchases ledger (accounts payable control account) and
the sales ledger (accounts receivable control account).
 Dishonoured cheque: a cheque that the payee’s bank
will not accept for payment because the
payer (person writing the cheque) does not have sufficient
funds to cover the amount being paid.
(This is sometimes referred to as “returned cheque”.)
 Contra entry (set off): relating to control accounts) a
transfer between an individual account payable and an
account receivable arising from the fact that the supplier
is also a customer, to establish a net amount to be paid
or to be received.
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Control Accounts
 Control accounts are also used as an easily
accessible source of details about total accounts
receivable and total accounts payable when preparing
trail balance, statements of financial position, etc.
 They can help reduce the risk of fraud since the work
of purchases ledger and sales ledger clerk is checked
by a more senior employee at regular intervals.
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Control Accounts
 Control accounts are prepared from totals taken from
relevant books of original entry.
 Control accounts are not (normally) part of the
double-entry system.
 They resemble a credit supplier’s account (accounts
payable control account) or credit customer’s account
(accounts receivable control account) in terms of how
entries are debited and credited within the accounts.
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Control Accounts
 However, rather like trial balance, control accounts
cannot reveal all the errors that could agreed with the
total of balances in its corresponding ledger, there
could still be errors of commission, omission and
original entry.
NOTE:
 Accounts payable control accounts are sometimes
called purchases ledger control accounts.
 Accounts receivable control accounts are sometimes
called sales ledger control accounts.
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Control Accounts
Accounts receivable control account
Transaction
Source of information
Total credit sales
Sales book
Total receipts from accounts
receivable
Cash book
Total discounts allowed
Cash book
Total return inwards
Returns inwards book
Total of bad debts written off
General journal
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Control Accounts
Accounts payable control account
Transaction
Source of information
Total credit purchases
Purchases book
Total payments to accounts
payable
Cash book
Total discounts received
Cash book
Total return outwards
Returns outwards book
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Control Accounts
 The opening balances of the control accounts are brought down
from the previous period. Some less common truncations are as
follows:
Transaction
Dishonoured cheques received from a
credit customer
Interest charged on credit customer’
overdue balances
Interest charged on credit suppliers’
overdue balances
Contra entries (set off) between a sales
ledger account and a purchases ledger
account (or vice versa). Contra entries
occur when an individual or business is
both a customer and a supplier, and the
balance of the two accounts are set off
against each other.
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Source of information
Cash book
General Journal
General Journal
General Journal
Control Accounts
 Sometimes the account of a credit customer (an
account receivable will have a credit balance.
 This can arise if the customer has overpaid. Similarly,
the account of credit supplier (an account payable)
will have a debt balance if the supplier has been
overpaid.
 These balance must be reflected when preparing the
relevant control accounts.
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Control Accounts
Dr
Accounts payable control account
2019
May
$
31
31
31
31
31
31
June
1
Balance b/d
Bank
Discount received
Return Outwards
Contra with sales
ledger
Balance c/d
Balance b/d
450
17 270
540
1 210
2019
May 31
31
31
31
$
Balance b/d
Credit purchases
Interest charges
Balance c/d
380
18 500
38 350
270
18 400
19 500
130
270
______
38 350_
June 1
Balance c/d
 Format for two column control account
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Cr
18 500
Control Accounts
 The control account on the previous slide shows that,
at 1 June, credit suppliers are owed $18 500 and
there is a credit suppliers account that has been
overpaid by $270.
 These figures should agree with those shown by
totaling the balances of ALL the accounts in the
purchase ledger.
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Control Accounts
Dr
Accounts receivable control account
2019
May
$
31
31
31
31
31
Balance b/d
14 320
Credit sales
17 240
Interest charges
90
Dishonoured cheque 410
Balance c/d
280
2019
$
May 31
31
31
31
31
31
31
32 340
June
1
Balance b/d
15 060
June 1
Balance b/d
140
Bank
14 820
Discount allowed
770
Return Inwards
610
Contras with purchases
ledger
380
Bad debt written off
560
Balance c/d
15 060
32 340_
Balance c/d
 Format for two column control account
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Cr
280
Control Accounts
 This control account shows that at 1 June credit
customers owe $15 060 and that there is a credit
customer’s account that has been overpaid $280.
 These figures should agree with those shown by
totaling ALL the balances of the accounts in the sales
ledger.
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Worked Example: Control Accounts
THE QUESTION
 On 31 December 2019 Alvin must prepare control
accounts to check the accuracy of his sales and
purchases ledger.
 He has the following information shown in the table on
the next slide.
NOTE: For the purposes of this worked example,
every item of information has been given a reference
letter to help you identify how the items has been
used in the answer.)
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Worked Example: Control Accounts
Control account balance, 1 December 2019
Sales ledger control account debit balance
Sales ledger control account credit balance
Purchase ledger control account credit balance
Purchase ledger control account debit balance
Cash book totals
Receipts from credit customers
Payment to credit suppliers
Discount allowed
Discount received
Dishonoured cheques (from credit customers)
Cash purchases
Cash sales
Total from books of original entry
Sales book
Purchases book
Returns inward book
Returns outward book
General journal totals
Bad debts written off
Contra entry between sales ledger and purchases ledger accounts
Balance shown in the sales ledger at 31 December 2019
Total of debit balance
Total of credit balance
Balances shown in the purchases ledger at 31 December 2019
Total of debit balances
Total of credit balances
$
ID
6 520
290
8 480
310
A
B
C
D
5 990
8 630
240
450
180
3 920
15 870
E
F
G
H
I
J
K
7 440
9 300
510
450
L
M
N
O
270
880
P
Q
6 350
390
R
520
7270
S
Worked Example: Control Accounts
REQUIRED:
 Prepare the sales ledger control account and
purchases ledger control account for December 2019.
 Explain what the balances of the control accounts as
at 31 December 2019 tell Alvin about his sales and
purchases ledger records.
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Worked Example: Control Accounts
GETTING STARTED

Where to start?:
 Read though the details carefully.
 You need to begin to think about where you will record this
information.
 What items will need to be selected to be shown in the
accounts receivable control account?
 What items will need to be selected to be shown in the
accounts payable control account?
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Worked Example: Control Accounts
THE ANSWER

Preparing the control accounts:

When you have selected item to be shown in
each control account, the next step is to think
carefully about on which side of the control
account to record each item.
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Worked Example: Control Accounts
Dr
Accounts receivable control account for December 2019
2019
Dec
$
31
31
31
31
Balance b/d
6 520
Credit sales
7 440
Dishonoured cheque 180
Balance c/d
390
2019
$
A Dec 31
31
L
31
I
31
R
31
31
31
14 530
June
1
Balance b/d
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6 350
Cr
June 1
Balance b/d
290
Return Inwards
510
Bank
5 990
Discounts allowed
240
Contras with
purchases ledger
880
Bad debt written off
270
Balance c/d
6 350
14 530_
Balance b/d
390
B
N
E
G
Q
P
R
Worked Example: Control Accounts
THE ANSWER

Explaining the balances:

The sales ledger account debit balance of $6 350
agrees with the total balance shown in the sales
ledger, so it appears that the total of the sales
ledger balance is arithmetically correct.

That control account confirms that business is
owed $6 350.
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Control Accounts
Dr
Accounts payable control account for December 2019
2019
Dec
$
31
31
31
31
31
31
Jan
1
Balance b/d
310
Return Inwards
450
Bank
8 630
Discounts received
450
Contra Entry with
sales ledger
880
Balance c/d
7 580
18 300_
Balance b/d
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2019
Cr
$
D Dec 31
31
O
31
F
H
Balance b/d
Credit purchases
Balance c/d
8 480
9 300
520
C
M
S
Q
520 S
18 300__
Jan
1
Balance b/d
7 580
Worked Example: Control Accounts
THE ANSWER.

Explaining the balances:
 However, the credit balance of the purchases ledger
control account, $7 580, does not agree with the total of
the balance in the purchases ledger, so there are errors in
the accounting system.
 This discrepancy must be resolved in order for the
business to have valid information about how much is
owed to credit suppliers.
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Exam Tips
In preparing for your exams, you should:
 Remember that if there are contra entries, they
should appear both in the accounts payable control
account and the accounts receivable control account.
 Never forget to balance your control accounts and
bring the balance down. Your own balances on the
control account can then be checked against the
figures produced by the sales ledger and the
purchases ledger clerks to see if they agree
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Summary Questions
By now you should be able to answer the
following:

Describe three benefits of preparing control
accounts.

List three items that should be recorded in an
accounts receivable control account and state the
source of information for each of these entries.

Explain the term “contra entry” when used in
connection with control accounts.
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