Control account

 prepare sales & purchase ledger control acc.

- Control acc.: contains the totals of all postings made to the acc. in a particular ledger.
- The totals are the periodic totals of the books of prime entry from which postings are made to the ledger.
- The balance on a control acc. should equal the total of the balances in the ledger it controls
Purchase ledger control acc.
Debit Credit
Balance b/d (if any) Balance b/d (usually here)
Purchases returns / returns outwards (purchase returns journal) Credit purchases (purchases journal)
Cash paid (cash book) Cash refunds (cash book)
Discount received (cash book) Interest expense (purchases journal)
Contra-entry (general journal) Balance c/d (if any)
Balance c/d (usually here)

Sales ledger control acc.

Debit Credit
Balance b/d (usually here) Balance b/d (if any)
Credit sales (sales journal) Sales returns / returns inwards (sales returns journal)
Cash refunds (cash book) Cash received (cash book)
Dishonoured cheques (cash book) Discount allowed (cash book)
Interest income (sales journal / cash book) Bad debts (general journal)
Recovered bad debts (general journal) Cash from recovered bad debts (cash book)
Balance c/d (if any) Contra-entry (general journal)
Balance c/d (usually here)

 cash transactions for sales & purchases

Advantages Disadvantages
- Maybe a reduction in number of customers (1)
- Will improve overall cash flow (1)
Sales - May have to reduce selling price to attract new
- Reduces the possibility of irrecoverable debts (1)
customers (1)

- May improve the relationships w/ the suppliers (1) - Overall cash flow will decrease (1)
Purchases
- May be able to negotiate a better purchase price (1) - Not making use of available credit terms (1)

 reconcile control acc. & ledgers

- Control accounts are prepared using totals from books of prime entry.
- Provision for doubtful debts & are not included in a sales ledger control acc. as these accounts are kept in a general
ledger.
- Transfers between personal accounts that appear in both the ledgers are known as contra items.
- Individual ledger accounts in the sales ledger are used to send out statements & reminders to credit
customers.
- Reasons for credit balance:
 The customer may have overpaid the invoice
 The customer may pay in advance, / may pay a deposit before the delivery of the goods, & thus before the sales
invoice has been raised
 The customer may have paid in full, but returned some / all of the goods. The seller has raised a credit note &
posted it to the customer’s acc. & also to the sales ledger control acc.
 Effect of not updating the:
Sales Ledger Purchases Ledger
Business may not be collecting the right amount from credit customers. Incorrect purchase ledger balances could mean possible disputes
w/ suppliers affecting deliveries
It may also risk resulting in irrecoverable debts May result in credit facilities being w/drawn.
Non-collection of debts would negatively impact cash balances May lead to overpaying suppliers
May lead to incorrect financial statements May result in loss of opportunities of settlement discount.

 outline the uses & limitations of control acc.

Uses Limitations
Find errors if the balances do not agree Control acc. may contain errors as well
Prevents fraud as control acc. are prepared by someone who is They do not guarantee the accuracy of individual acc.
not involved in maintaining the ledgers (compensating errors)
Important procedure if business does not maintain double-entry May add to business costs as a specialist is required to verify
System accuracy
May identify the acc. in which the errors have been made
Provide totals of TR & TP for the TB

Control

ON/22/22

1 Usman has extracted the following information from his books of account in order to update the sales
ledger control account for the month of August 2022.
$
Balance brought down at 1 August 2022 34 210
Cheque receipts from credit customers 32 840
Customers’ dishonoured cheques 1 020
Sales journal totals 29 760
Sales returns journal totals 980

Usman has produced a list of all customer account balances at 31 August 2022 totalling $30 477. He has

discovered the following:

1 The total of the sales journal had been overcast by $600.

2 Discounts allowed of $218 had been entered in customers’ accounts but no entries had been made in
the control account.

3 A contra for $325 had been correctly entered in both the customer’s account and the supplier’s
account.

4 A customer’s overpayment of $65 had been repaid by cheque but no entries had been made in the
books of account.

5 A cheque received from Musa for $250 had been posted to the account of Hussein.

6 An irrecoverable debt of $180 had been correctly written off in a customer’s account but had not been
entered in the control account.

7 A credit balance of $315 on a customer’s account had been incorrectly entered as a debit balance
in the list of customer account balances at 31 August 2022.
 REQUIRED

(a) Prepare the updated sales ledger control account for the month of August 2022.
(a) Prepare an amended total of customer account balances to agree with the sales ledger control
account balance in (a).
(b) State one limitation of preparing a control account.
(c) Explain why a sales ledger control account would help in the prevention of fraud.
MJ/22/23

Nibras purchases and sells goods for cash and on credit. Control accounts are used to check the accuracy of the
business’s purchases and sales ledgers.

The following information is available for January 2022.

1 Purchases ledger account balances at 1 January 2022 were:

$
Amounts owed to suppliers 23 490
Amount overpaid to one supplier 320

2 Totals from the books of prime entry were as follows:

$
Cash book
Cash purchases 18 540
Payments to trade payables 202 950
Discounts received 4 920
Purchases journal 212 480
Returns outwards journal 3 770
General journal
Contras to sales ledger 810

3 There were no overpaid accounts in the purchases ledger at the end of the month.

REQUIRED

(a) Prepare the purchases ledger control account for January 2022.

On 31 January 2022 the following information was available concerning trade receivables.

$
Balance of the sales ledger control account 25 310
Total of balances in the sales ledger 23 980

The following errors were discovered. When corrected, the total of balances in the sales ledger agreed
with the balance of the sales ledger control account.

1 An irrecoverable debt of $540 had been recorded as $450 in both the general ledger and the
customer’s sales ledger account.

2 The total of the returns inwards journal, $1390, had been omitted from the sales ledger control
account.

3 The balance of a customer’s account had been understated by $120.

4 A credit note, $90, issued to a credit customer had been recorded correctly in the sales return journal
 but posted to the debit side of the customer’s account.

REQUIRED

(b) (i) Calculate the correct balance of the sales ledger control account.

ii) Calculate the correct total of balances in the sales ledger. Control accounts do not reveal every type of
error.

REQUIRED

(c) State three types of error which are not revealed by a control account.

ON/21/21

2 Martina has prepared the following sales ledger control account for the month of August 2021. All sales
are on credit.

Sales ledger control account for the month of August 2021

$ $
Balance b/d 14 280 Sales returns journal 210
Sales journal 9 540 Bank 11 860
Discounts received 280
Balance c/d 11 470
23 820 23 820
Balance b/d 11 470

Martina produced a list of all customer account balances at 31 August 2021 totalling $10 020. She

discovered that the following errors had been made in the records.

1 Discounts allowed of $1190 had been entered in customers’ accounts but had not been entered in the
control account.

2 A credit transfer from a customer of $420 had been correctly entered in the cash book but had been
credited to the customer’s account as $240.

3 A credit balance of $60 on a customer’s account had been recorded on the list of balances as a debit
balance.

4 A contra to the purchases ledger of $860 had been entered in the customer’s sales ledger account but
had not been entered in the control account.

5 A cheque received from a customer of $380 had been returned unpaid by the bank. No entries had
been made in Martina’s books of account in respect of the unpaid cheque.

6 Martina had sent a cheque for $20 to a customer who had overpaid his account. The payment had
been correctly processed in both the cash book and the customer’s account but had been posted to the
purchases ledger control account in error.
 5

REQUIRED

REQUIRED

(a) Prepare an adjusted sales ledger control account.

(a) Prepare an adjusted list of sales ledger balances to agree with the adjusted sales
ledger control account balance in part (a).
(b) Explain how the preparation of a sales ledger control account assists in the
prevention of fraud.
(c) State three types of error that will not be identified by preparing a sales ledger
control account.
(d) MJ/21/23
Hamid prepares control accounts to check the accuracy of his business’s purchases and sales
ledgers.

REQUIRED

(a) Explain two benefits to a business of using control accounts other than checking the
arithmetical accuracy of ledger accounts.

Additional information

On 31 January 2021 Hamid provided the following information:

1 The balance of the sales ledger control account on 1 January 2021 was $17 820.

2 Totals for January 2021 from books of prime entry

$
Cash book
Discount allowed 430
Receipts from trade receivables 16 230
General journal
Contra entries with purchases ledger 890
Sales journal 18 440
Sales returns journal 310

3 On 31 January 2021 a credit customer had overpaid his account by $170.

REQUIRED

(b) Prepare the sales ledger control account for January 2021.

Additional information

On 31 January 2021 the total of balances in the purchases ledger was $12 860, but the balance
 6

REQUIRED
of the purchases ledger control account on this date was $12 980.

The following errors were discovered.

1 The total of the discounts received column of $110 had not been posted from the cash
book.

2 The total of the purchases returns journal had been overstated by $250.

3 Interest of $130 charged by a supplier because of an overdue balance had been debited
to the supplier’s account.

(c) Prepare statements to show corrected totals for:

(i) the purchases ledger balances

(ii) the purchases ledger control account balance

MJ/20/23
1 The following balances appear in Reena’s purchases ledger control account at 29 February
2020.

$
Total of amounts due to credit suppliers 27 450
Total of a credit supplier’s account which had been overpaid 290

The bookkeeper extracted the following information from the books of prime entry for March
2020.

$
Purchases journal 32 480
Purchases returns journal 1 430
Cash book: cash purchases 7 290
Cash book: payments to credit suppliers 26 980
Cash book: totals of discounts columns
Debit column in cash book 1 780
Credit column in cash book 1 060
General journal
Contra entries sales ledger to purchases ledger 810
Interest charged by credit suppliers on overdue accounts 470

At 31 March 2020 there were no overpaid suppliers’ accounts.

REQUIRED

(a) Prepare the purchases ledger control account for March 2020.

(b) State three reasons why a business may prepare a purchases ledger control account.
 7

REQUIRED

Additional information

The bookkeeper also prepared a sales ledger control account for March 2020. However, the
balance of the control account did not agree with the total of balances of accounts in the sales
ledger.

The following errors were discovered which accounted for the difference.

1 The total of the sales returns journal had been overcast by $160.

2 The balance of a sales ledger account had been undercast by $150.

3 An entry in the sales journal for Susan Baker, $370, had been posted as a debit entry in
the sales ledger account of Sarah Barker.

4 The bank statement for 31 March 2020 recorded the return of a cheque for $420
received from a credit customer. This transaction had not yet been recorded in the
books of account.

5 An entry in the general journal to write off the balance of the account of J Limited,
$230, as irrecoverable had been posted to the debit side of the customer’s account.

(c) Complete the following table to reconcile the sales ledger control account balance
with the total of the sales ledger balances.

Error 1 has been completed for you as an example.

sales ledger control account total of sales ledger

balance balances
$ $

Incorrect figures 14 850 15 320

Error 1 160 –

Error 2

Error 3

Error 4

Error 5

Corrected figures
[5]

Mar/20
1 Eden runs a small business and has provided the following information for the year
 8

REQUIRED
ended 31 December 2019.
$
Trade receivables at 1 January 2019 45 000
Contra sales ledger to purchases ledger 780
Discounts allowed 1 025
Discounts received 695
Interest charged on a customer’s overdue account 65
Irrecoverable debt 945
Receipts from trade receivables 128 600
Returns inwards 2 500
Returns outwards 1 800
Total sales 190 000

20% of total sales are cash sales; the remainder are credit sales.

REQUIRED

(a) Explain three advantages to a business of preparing control accounts.

(b) Prepare the sales ledger control account for the year ended 31 December 2019.