Control Accounts
1
Functions of control accounts
The control accounts help us to locate
errors.
The control accounts provide a summary.
The total balances of the debtors and
creditors can be derived quickly and easily.
The control accounts are prepared by a
different person than the one who
prepares the sales and purchases ledgers,
which also make fraud more difficult.
2
Form of control accounts
It is usual to final control accounts in
the same form as an account, with
the totals of the debit entries in the
ledger on the left-hand side of the
control account, and the totals of the
various credit entries in the ledger on
the right hand side of the control
account.
3
Sales ledger control account
Sales ledger control account = Total
debtors
account
4
Sales Ledger Control Account
1996
$
1996
Dec 1 Balance b/f
a
Dec 1 Balance b/f
31 Sales
b
31 Returns Inwards
j
31 Cash / Bank
c
31 Cash / Bank
k
31 Bank
d
31 Bills receivable
l
31 Bills receivable
e
31 Set-off
m
31 Interest received
f
31 Discount allowed
n
31 Bad debts recovered
g
31 Bad debts
o
31 Balance c/f
h
31 Balance c/f
p
x
$
i
x
5
Items
a. Total of opening debit balance of
debtors
b. Total credit sales
c.Cash refund to a customer who
has overpaid his account
d. Dishonoured cheques
Sources
Sales ledger
e. Dishonoured bills
Journal
f. Interest charged by us on
overdue debts
Journal
g. Bad debts recovered
Journal
h. Total of closing credit balances
of debtors
Sales ledger
Sales journal
Cash book
Cash book
6
i. Total of opening credit balances
of debtors
j. Returns inwards
k. Cash or cheques received from
debtors
l. Bills receivable from debtors
Sales ledger
Returns inwards
journal
Cash book
Journal
m. Balances in sales ledger set off
Journal
against credit balances in purchases
ledger
n. Discounts allowed
Cash book
o. Bad debts written off (not
Journal
provision for bad debts)
p. Total of closing debit balances of Sales ledger
debtors
7
Purchases ledger control account
Purchases ledger control account =
Total creditors account
8
Purchases Ledger Control Account
1996
$
1996
$
Dec 1 Balance b/f
a
Dec 1 Balance b/f
h
31 Returns Outward
b
31 Purchases
i
31 Cash / Bank
c
31 Cash / Bank
j
31 Bills Payable
d
31 Bank
k
31 Set-off
e
31 Bills Payable
l
31 Discounts Received
f
31 Interest Expenses
m
31 Balance c/f
h
31 Balance c/f
n
x
x
9
Items
a. Total of opening debit
balances of creditors
b. Returns outwards
c. Cash or cheques paid to
creditors
Sources
Purchases ledger
Returns outwards
journal
Cash book
d. Bills payable to creditors
Journal
e. Balances in purchases ledger
set off against debit balances in
sales ledger
Journal
f. Discounts received
Cash book
g. Total of closing credit
balances of creditors
Purchases ledger
10
h. Total of opening credit balances
of creditors
Purchases
ledger
i. Total credit purchase
Purchases
journal
Cash book
j. Cash refund from suppliers who
have overcharged us
k. Dishonoured cheques returned
from creditors
l. Dishonoured bills returned from
creditors
m. Interest payable on overdue
debts
n. Total of closing debit balances
of creditors
Cash book
Journal
Journal
Purchases
ledger
11
Types of Minority balances
Temporary debit balances in total
creditors account
Temporary credit balances in total
debtors account
12
Reasons for the occurrence of
minority balances
Returns after settlement of the
accounts
Claims for shortages of goods or for
invoices overcharged after
settlement the accounts
13
Minority balances on the balance
sheet
Balance sheet
Debtors (debit balance of sales ledger + debit
balance of purchases ledger)
八 (debit balance of
Less: provision for bad debt
sales ledger x percentage)
X
X
X
Creditors (credit balances of purchases
ledger + credit balances of sales
ledger)
X
14
Contra item
If the same firm is both a supplier
(creditor) and a customer (debtor),
inter-indebtedness is set-off
Contra items(set-off) are shown on
the credit side of the sales ledger
control account and will appear on the
debit side of the purchases ledger
control account
15
The following information was extracted from the
books of Lewell Ltd. On 1 March 1996:
Purchases ledger control account
28,500
Sales ledger control account
67,300
During the month:
Cash sales
12,000
Credit sales
20,000
Cash purchases
Credit purchases
8,800
14,000
16
Discounts received from suppliers
5,400
Discounts allowed to customers
4,200
Returns Inwards
900
Cash received from customers
25,000
Cash payment to suppliers
30,000
Returns Outwards
700
Bad debts written off
100
Bills receivable from customers
11,000
Dishonoured cheques returned to customers
500
Balances in sales ledger set off against credit
Balances in purchases ledger
2,600
17
Example 1
18
Total creditors account
31/3 discount received 5400 31/3 bal b/f
Returns outwards 700 31/3 purchases
Set-off
2600
Cash
30000
Bal c/f
3800
42500
Total debtor accounts
31/3 Bal b/f
Sales
Bank
67300 31/3 discount allowed
Returns inwards
20000
Bad debts
500
Cash
Bill receivable
Set-off
Bal c/f
87800
28500
14000
42500
4200
900
100
25000
11000
2600
44000
87800
19
Comparing Sectional
Balancing and Self-balancing
system
20
Self-Balancing system
•
•
.
In larger organizations, control
accounts are part of the double
entry system,
The sales ledger and purchases
ledger (debtors and creditor
accounts) are kept only on a
memorandum purposes
21
Sectional Balancing System
• In small firms, debtors and creditors
accounts are regarded part of the
double-entry system
• The control accounts should be kept
only for memorandum purposes
22
Sectional Balancing System
Original
documents
Sales/Purchases
Journals
General ledger
Sales and purchases a/c
Sales Ledger control a/c
Purchases ledger control a/c
Sales/purchases ledgers
Debtors/Creditors
Trial Balance
For memorandum
purpose
Double-entry system
Note:
posting
extracting
23
Self-Balancing System
Original
documents
Sales/Purchases
Journals
General ledger
Sales and purchases a/c
Sales/purchases ledgers
Debtors/Creditors
Sales Ledger control a/c
Purchases ledger control a/c
Trial Balance
Double-entry system
For memorandum
purpose
Note:
posting
extracting24
Transaction recording
25
Seller’s book
26
Transactions
A Credit sales
B Receipts from
debtors
Self-balancing System
Sectional
Balancing
System
Dr Sales Ledger Control Dr Debtors
Cr Sales
Cr Sales
Dr Cash / Bank
Dr Cash/Bank
Cr Sales Ledger Control Cr Debtors
C Return inwards Dr Return Inwards
Dr Return
Cr Sales Ledger Control inwards
Cr Debtors
D Discount
Dr Discount Allowed
Dr Discount
allowed
Cr Sales Ledger Control Allowed
Cr Debtors
27
Transactions
E Bad debts
written off
F Bad debt
recovered
Self-balancing System
Sectional
Balancing
System
Dr Bad debts
Dr Bad debts
Cr Sales Ledger Control Cr Debtors
Dr Cash/Bank
Dr Sales Ledger Control Cr Debtors
Cr Bad debts recovered
Dr Cash / Bank
Cr Sales Ledger Control
28
Buyer’s book
29
Transactions
A Credit
purchases
B Payment to
creditors
Self-balancing System
Dr Purchases
Cr Purchases Ledger
Control
Dr Purchases Ledger
Control
Cr Cash/ Bank
Sectional
Balancing
System
Dr Purchases
Cr Creditor
Dr Creditors
Cr Cash/Bank
C Return
outwards
Dr Purchases Ledger
Control
Cr Return Outwards
Dr Creditors
Cr Return
Outwards
D Discount
received
Dr Purchases Ledger
Control
Cr Discount Received
Dr Discount
Allowed
Cr Debtors
30
Correction of Errors
31
Errors
a. Credit sales
invoice omitted
Self-balancing System
Dr Sales ledger Control
Cr Sales
Sectional
Balancing
System
Dr Debtors
Cr Sales
(Increase the debtors ledger (Debit the sales
listing.)
ledger control
account.)
b. Sales omitted Dr Sales Ledger Control Dr Debtors
in journal
Cr Sales
Cr Sales
(Increase the debtors ledger (Debit the sales
listing.)
ledger control
account.)
32
c. Sales of $120
incorrectly
entered in sales
journal as $100
Dr sales Ledger
Control
Cr Sales
Dr Debtors
Cr Sales
d. Sales journal
undercast.
Dr Sales ledger
Control
Cr Sales
Dr Suspense
Cr Sales
(increase the debtors
ledger listing.)
(The debtors ledger
listing remains constant,
because only the total
figure is wrong. This
does not affect the
debtors accounts, the
figures for which are
entered individually.)
e. Sales of $120 Dr Suspense
incorrectly
Cr Sales
entered as $100
in sales account
(Debit the sales
ledger control
account.)
(Debit the sales
ledger control
account.)
Dr Suspense
Cr Sales
33
f. Sales
understated in sales
ledger control
account
g. Sales of $120
incorrectly debited
to debtor account
as $100.
Dr Sales Ledger
Control
Cr Suspense
No entry
No entry
Dr Debtors
Cr Suspense
(Increase the debtors
ledger listing.)
h. Balance of sales Dr Suspense
has been incorrectly
put to the wrong
side of the trial
balance.
i. Balance of
No entry
debtors has been
incorrectly put to
the wrong side of
the trial balance.
(Debit the sales
ledger control
account.)
Dr Suspense
Cr Suspense
34
j. Balance of sales
ledger control account
has been incorrectly
put to the wrong side
of the trial balance.
Cr. Suspense
No entry
35
Example 2
36
John Chan
The Journal
Dr
Cr
1996
$
$
Dec 31 Sales Ledger Control
Sales
31 Suspense
Discount received
31 Returns Outwards
Purchase Ledger Control
31 Purchases Ledger Control
Sales Ledger Control
31 Bank
Sales Ledger Control
31 Bank
Suspense
530
530
1,050
1,050
3,200
3,200
120
120
1,000
1,000
2,250
2,250
37
Suspense Account
$
$
Bank
2,250
Balance b/f
1,200
Discounts received
1,050
_____
2,250
2,250
Sales Ledger Control Account
$
$
Balance b/f
Sales
Balance c/d
30,000
530
2,950
Bank
Purchase Ledger Control-set off
Balance c/d
32,360
120
32,360
33,480
33,480
Balance b/d
1,000
Balance b/d
2,950
38
Statement showing the Revised Balance of Sales Ledger Listing
$
Original Balance
32,000
Add Invoice understated
360
Revised Balance
32,360
Purchases Ledger Control Account
$
$
Sales Ledger Control-set-off
Balance c/d
120
Balance b/d
16,500
Returns Outwards
3,200
______
Balance c/d
1,420
16,620
16,620
Balance c/d
12,000
Balance b/d
16,500
39
Statement showing the Revised Balance of Purchases Ledger Listing
$
Original Balance
17,135
Less Balance overstated
635
Revised Balance
16,500
Statement showing the Revised Net Profit for the year ended 31 Dec 1996
$
Net Profit as per accounts
Add Sales undercast
Discounts Received undercast
$
11,200
530
1,050
1,580
12,780
Less Returns Outwards overcast
3,200
Revised Net Profit
9,580
40
John Chan
Balance Sheet as at 31 Dec 1996
$
Fixed Asset
$
12,000
Less Prov. For Depn.
$
Capital
5,000
Balance as at 1 Jan 96
7,000
Add Net Profit
Current Assets
38,000
9,580
47,580
Stock
16,000
Current Liabilities
Debtors (32360+1420)
33,780
Creditors(16500+2950)
Bank (7000+1000+2250) 10,250
19,450
60,030
______
67,030
67,030
41