INTRODUCTION TO FINANCIAL ACCOUNTING (ACC2001)
LECTURE NOTES
UNIT 1(a) – CONTROL ACCOUNTS
Control accounts are extensions to the double entry function, and are used as part of the internal
controls system. They are commonly used in the management of the entries made in the various
ledger accounts. At the end of an accounting period, the net amount for each ledger system can
be verified against all the subsidiary items which were posted to that system. For example, the
total of all the accounts in the sales ledger should correspond with the net of all the input
accounts such as credit sales, return inwards, bad debts, etc.
USES OF CONTROL ACCOUNTS
1. Provide a check of the accuracy of entries made in the various ledger accounts
2. Serves to minimize the use of bulky data in the ledgers by focusing on the totals from the
subsidiary records
3. Assist in detecting errors made in the accounting period. Control accounts may be
conducted periodically - daily, weekly, etc, so that early detection of errors can be made
4. By separating the double entry book keeping activity from the control or check of the
input records, there is an objective internal audit control system
5. Ascertain missing figures such as total credit sales, or credit purchases, total amount for a
revenue item, or the net amount for depreciation charges
TYPES OF CONTROL ACCOUNTS
Sales Ledger Control Account (SLCA)
The SLCA is used to verify the balance in the sales ledger accounts. It is also called the total
debtors control accounts. Items used to prepare the SLCA are derived from the subsidiary
documents used in relations to credit customers, and would include:
Sales ledger control account
Balance b/d (major)
x
Bal b/d (minor)
x
Credit sales**
Bad debts
x
Refund to credit customers
Cheques/cash received
x
Dishonoured cheque
Discount allowed
x
Bal c/d (minor)
Returns inwards
Set off against purchases ledger
Bal c/d (major)**
x
x
x
x
x
x
x
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** Usually the aim is to determine either the credit sales or the closing balance. Once found, the
sales account can then be used to determine total sales.
Bal c/d [total sales]
Sales account
x
SLCA [credit sales]
Cash sales
x
x
Purchases Ledger Control Account (PLCA)
The purchases ledger control account (PLCA) is used to verify the balance in the purchases
ledger accounts. It is also called the total creditors control accounts, or the total accounts payable
control accounts. Items used to prepare the PLCA are derived from the subsidiary documents
used in relations to credit suppliers, and would include:
Purchases ledger control account
x
Bal b/d (minor)
Bal b/d (major)
x
Cheques/cash paid
Credit purchases**
x
Returns outwards
Refund from credit suppliers
x
Discount received
Cheques returned by suppliers
x
Set off against sales ledger
Bal c/d (minor)
x
Bal c/d (major)**
x
x
x
x
x
** Usually the aim is to determine either the credit purchases or the closing balance. Once found,
the purchases account can then be used to determine total purchases.
PLCA [credit purchases]
Cash purchases
Purchases account
x
Drawings
x
Bal c/d [total purchases]
x
x
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Lecture question 1
From the following data, prepare the SLCA and the PLCA
May 1
Creditors
Debtors
Totals for the month:
Credit purchases
Credit sales
Set off against both ledgers
Payments to suppliers
Cash received from customers
Discounts received
Discounts allowed
Returns outwards
Returns inwards
7,418
2,176
10,260
21,370
200
16,000
20,410
310
204
179
184
Solution to lecture question 1
Bal b/d
Credit sales
Bal b/d
Cheques/cash paid
Discount received
Returns outwards
Set off against sales ledger
Bal c/d
SLCA
2,176 Cheques/cash received
21,370 Discount allowed
Returns inwards
Set off against purchases ledger
_____ Bal c/d
23,546
2,548
PLCA
16,000 Bal b/d
310 Credit purchases
179
200
989
17,678
20,410
204
184
200
2,548
23,546
7,418
10,620
______
17,678
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OTHER APPLICATIONS OF CONTROL ACCOUNTS
The principles of control accounts can be used in other categories of accounts besides debtors
and creditors.
Non-Current Assets
The non-current or fixed assets can be verified based on the opening balance, additions,
revaluations, or disposals done during the period, reduction in value due to depreciation, and the
closing balance. Usually the aim is to determine the depreciation charged on the asset.
Bal b/d (NBV)
Bank/cash (asset purchased)
Asset account
x
Disposal (NBV)
x
Depreciation**
Bal c/d
x
x
x
For instances where an asset was sold, as separate disposal account is usually used to assess the
gain or loss on the item sold.
Asset (NBV)
Gain**
Asset disposal account
x
Bank/cash (selling price)
x
Loss**
x
x
Expenses and Revenues
Items of expense or revenue can be verified based on amounts owing or prepaid at the start,
payments reflected in the cash book, and amounts in balance at the end of the period.
Bal b/d (prepaid)
Bank/cash (amount paid)
Bal c/d (owing)
Expense account
x
Bal b/d (owing)
x
Expense amount**
x
Bal c/d (prepaid)
x
x
x
Bal b/d (owing)
Revenue amount**
Bal c/d (prepaid)
Revenue account
x
Bal b/d (prepaid)
x
Bank/cash (amount received)
x
Bal c/d (owing)
x
x
x
Usually there is only one item of bal b/d at the start and one item of bal c/d at the end, dependent
on whether the amount is owing or prepaid.
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Owner’s Equity
Adjustments may be made to the owners’ equity for such items as additional capital invested, the
amount for net income or net loss for the period, drawings of cash and goods for personal use.
Thus, the entries for the adjustments may be as follows:
Opening equity
add Additional capital
add Net income/less Net loss
less Combined drawings*
= Closing equity
*where combined drawings = cash drawings + drawings of stock
Lecture question 2
Lucas Hylton has provided the following extract of its non-current assets for 2015:
Equipment (NBV)
January 1
435,000
December 31
520,000
During the year, old equipment with a book value of $50,000 was sold for $65,000. New
equipment was purchased for $150,000.
(i) How much was the depreciation charge for the year?
(ii) Was there a gain or loss on the sale of the asset?
Solution to lecture question 2
Bal b/d
Bank/cash (asset purchased)
Bal b/d
Equipment (NBV)
Gain
Equipment
435,000 Disposal (NBV)
150,000 Depreciation
_______ Bal c/d
585,000
520,000
Equipment disposal
50,000 Bank/cash (selling price)
15,000
65,000
50,000
15,000
520,000
585,000
65,000
______
65,000
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Lecture question 3
The following data was obtained from the books of Cliff Huxtable at the end of 2010:
Account
Wages
Interest earned
Opening balance
Owed $12,000
Owed $10,000
During the year
Paid $80,000
Received $60,000
Closing balance
Prepaid $15,000
Prepaid $18,500
(i) How much is to be shown in the income statement for:
a. wages expense?
b. interest earned?
Solution to lecture question 3
Bank/cash (amount paid)
Bal b/d
Bal b/d (owing)
Revenue amount
Bal c/d (prepaid)
Wages
80,000 Bal b/d (owing)
Expense amount
______ Bal c/d (prepaid)
80,000
15,000
Interest earned
10,000 Bank/cash (amount received)
31,500
18,500
60,000
Bal b/d
12,000
53,000
15,000
80,000
60,000
_____
60,000
18,500
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