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Control Accounts

Control accounts are total accounts used to verify the accuracy of individual ledgers, primarily the sales and purchase ledgers. They help in quickly providing totals for debtors and creditors, identifying errors, and acting as an internal check against fraud. Key points include that cash sales and purchases are not recorded in control accounts, and various sources of information are used to prepare these accounts.

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2 views

Control Accounts

Control accounts are total accounts used to verify the accuracy of individual ledgers, primarily the sales and purchase ledgers. They help in quickly providing totals for debtors and creditors, identifying errors, and acting as an internal check against fraud. Key points include that cash sales and purchases are not recorded in control accounts, and various sources of information are used to prepare these accounts.

Uploaded by

kiarart84
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Control Accounts

Control Accounts are the total accounts used for checking the arithmetical accuracy of each of
ledger separately. The two most common control accounts are:

(i)The sales ledger control account (debtors ledger control a/c / total debtors a/c) and
(ii)The purchase ledger control account (creditors ledger control a/c/total creditors a/c)

Others include:
● Suspense Accounts
● Bank reconciliation

A control account contains the same information as the individual ledger accounts which it
controls, but in total.
Purposes of control accounts

1. To act as a check on the accuracy of the totals of the balances in the sales and purchases
ledgers.
2. To provide totals of debtors and creditors quickly when a trial balance is being prepared.
3. To identify the ledger(s) in which errors have been made when there is a difference on
the trial balance.
4. To act as an internal check on the work of the sales and purchases ledger clerks – to
detect errors and deter fraud, under the charge of a responsible person

J Sharpe

Date Details Folio Amount Date Details Folio Amount $


$
May 4 Sales 340 May 9 Bank 540
May 31 Balance c/d 200
540 540
June 1 Balance b/d 200

Sales Ledger Control Account

Set off / contra entries. Sometimes, the same person may be a debtor as well as a creditor for the
business. At the end of the month, the smab nller amount in his account from one ledger is
transferred to his account in the ledger with large amount. The entry passed for recording this
transfer is known as set off or contra entry.

A refund is simply a repayment of cash – for example, maybe the customer accidentally paid us
too much, and so we repay them (refund them) the extra.
When we receive cash: Dr cash Cr Accounts Receivables.
If we refund some of the cash: Cr Cash, Dr Accounts Receivables.

Sources of information for items appearing in the sales ledger control account

1. Credit sales- sales day book – total.


2. Returned cheques (unpaid cheques) – cash book- payments side/ bank statement.
3. Interest charged to debtors- Interest received account.
4. Cash or cheques from debtors – cash book-receipts side.
5. Discount allowed – cash book (debit side) or discount allowed account.
6. Sales returns – sales returns day book total.
7. Bad debts written off – general journal or bad debts account.
8. Set off or contra entries- general journal.

For example : Prepare the sales ledger control account

Opening Debtors 6 000


Receipts from debtors 11 400
Discounts allowed 600
Returns Inwards 500
Bad debts written off 500
Set off from purchase ledger 1 000
Credit sales of goods 15 000
Credit balances on 31 May 2006 200
Dishonored cheques 100
Interest charged to debtors 100
Cash refunds to customers 50

Sales Ledger Control Account


May 1 Balance b/d 6000 May 31 Receipts from debtors 11,400
May 31 Credit Sales 15000 May 31 Discount allowed 600
May 31 Dishonoured cheque 100 May 31 Return Inwards 500
May 31 Interest charged 100 May 31 Bad Debt 500
May 31 Cash refund 50 May 31 Set off 1000
May 31 Balance c/d 200 May 31 Balance c/d 7450
21450 21450
June 1 Balance b/d 7,450 June 1 Balance b/d 200

Q2.The following balances have been extracted from the books of a business on 31 may 2006
Prepare the Sales Ledger control account
$
Opening Debtors 10 000
Receipts from debtors 21 500
Discounts allowed 500
Returns Inwards 300
Bad debts written off 100
Set off from purchase ledger 800
Credit sales of goods 25 000
Credit balances on 31 May 2006 300
Dishonored cheques 1000
Interest charged to debtors 200
Cash refunds to customers 100

Purchases Ledger Control Account

When we paid cash: Dr Accounts payable Cr Cash


If we received a refund from supplier: Dr Cash, Cr Accounts Payable

Sources of information for items appearing in the purchases ledger control account
a Credit purchases – purchases day book total
b. Interest charged by creditors – interest paid account.
c. Cash/cheque paid to creditors – cash book – payments side.
d. Discount received – cash book payment side or discount received account
e. Purchases returns – purchases returns day book total.
f. Set off or contra entries – general journal.

Key Points

● Control accounts are considered as total accounts.


● Debtors ledger control account is also known as sales ledger control account or total
debtors account.
● Creditor’s ledger control account is also known as purchases ledger control account or
total creditors account.
● Balance in sales ledger control account is the balance of debtors at the year end and
balance in purchases ledger control account is balance of creditors.
● Cash sales and cash purchases are not recorded in the control accounts.
● The double entry to record set off from purchase ledger to sales ledger is to debit
purchase ledger control account and credit sales ledger control account.
● Dishonoured cheque which was received from debtors is shown in the debit side of the
sales ledger control account.
● Interest on overdue accounts charged from customers and refunds to customers for
overpayments by them are shown on the debit side of sales ledger control account.
● Interest charged by suppliers and refunds received from suppliers for overpayments to
them are recorded in the credit side of purchases ledger control account.
● Provision for bad debts is not included in sales ledger control account
● Small balance in a control account represents advance payments, overpayments etc.
●

The following balances have been extracted from the books of a business that uses control
accounts. The business makes up the control accounts on 31 may 2006.Prepare the Purchases
Ledger Control Account

For example:

$
Opening Creditors 4 000
Payments to creditors 7 600
Discounts received 400
Purchases returns 500
Set off from Sales Ledger 1 000
Interest charged by suppliers 200
Cash refunds from suppliers 100
Credit Purchases 12000

Purchases Ledger Control Account


May 31 Payment 7,600 May 1 Balance b/d 4000
May 31 Discount received 400 May 31 Interest charges 200
May 31 Purchases return 500 May 31 Cash refund 100
May 31 Set off 1,000 May 31 Credit Purchases 12000
May 31 Balance c/d 6,800
16,300 16,300
June 1 Balance b/d 6,800

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