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Edexcel IGCSE Accounting: Your notes

Introduction to Bookkeeping &
Accounting
Control Accounts
Contents
Purpose of a Control Account
Trade Receivables Ledger Control Account
Trade Payables Ledger Control Account

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Purpose of a Control Account

Your notes
Purpose of a Control Account
What is a control account?
A control account is a summary of all balances and transactions for trade receivables or for trade
payables
A trade receivables ledger control account summarises all the transactions for trade receivables
A trade payables ledger control account summarises all the transactions for trade payables
The totals are found using the books of original entry rather than the ledger accounts
This is so that errors in the ledger accounts can be easily identified
The closing balance is found for the control account and compared to the sum of the closing balances
in the receivables ledger accounts or the payables ledger accounts
If there are no errors, these figures will be equal

What is the purpose of a control account?

To provide a summary of transactions for that type of account
A trade receivables ledger control account gives a summary of all transactions with credit
customers
A trade payables ledger control account gives a summary of all transactions with credit suppliers

Do control accounts identify all errors?

Control accounts do not identify all errors
This is similar to the trial balance
The following errors are not identified
Errors of commission
Errors of omission
When a transaction is not entered into the books of original entry
Errors of original entry
When a transaction is entered into the books of original entry with an incorrect amount

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Compensating errors
What are contra entries? Your notes
A person or business may be both a credit customer and a credit supplier
If a business owes some money to a person but is also owed money by that person then they can
agree to offset the common balance
This is known as a contra entry
The offset is done without any exchange of money
The book of original entry for contra entries is the general journal
Journal entries will be made with a narrative
Entries will then be made to the ledger accounts:
Debit the trade payables account
Credit the trade receivables account

CASE STUDY
Aadam owes Brie $500. Brie owes Aadam $300.
Instead of paying each other $300, they agree to offset Brie's balance against Aadam's. This means
they each reduce their balance by $300 without exchanging any money.
Aadam now owes Brie $200. Brie now does not owe any money to Aadam.

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Trade Receivables Ledger Control Account

Your notes
Trade Receivables Ledger Control Account
What is a trade receivables ledger control account?
A trade receivables ledger control account is an account that summarises all the transactions for
trade receivables
It is not part of the double entry system

Where do I find the information to complete a trade

receivables ledger control account?
The books of original entry are used to find the totals
The sales day book is used to find the total value of credit sales
The sales returns day book is used to find the total value of returned goods
The cash book is used to find the total values for:
Money received from credit customers
Money refunded to credit customers
Cash discounts allowed to credit customers
Dishonoured cheques received from credit customers
The journal is used to find the total values for:
Interest charged to credit customers on overdue accounts
Contra entries against the purchases ledger
Irrecoverable debts written off

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Your notes

EXAM TIP
The ledger accounts are not used when preparing control accounts. The information is taken from
the books of original entry.

Why might there be a credit balance in a trade receivables

ledger control account?
A trade receivables account will usually have a debit balance
This indicates that the credit customer owes the business money
However, a trade receivables account could have a credit balance
This indicates that the credit customer is owed money
Credit balances can occur when:
Credit customers pay in advance of buying goods
Credit customers make an overpayment

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The business owes refunds to credit customers

The customers have paid for goods and then returned them Your notes
Debit and credit balances are totalled separately in the trade receivables ledger control account
This means there could be two opening balances and two closing balances
What is the layout of a trade receivables ledger control
account?
The layout looks very similar to the layout of a trade receivables ledger account
The main differences are:
There could be two opening balances
There could be two closing balances
Use the name of the book of original entry as the detail
Put more information in brackets

Entries on the debit side: Entries on the credit side:

Opening balance Opening balance

Credit customers who owe money Credit customers who are owed money
Sales day book Sales returns day book
Credit sales only Credit sales only
Journal Cash book
Interest Bank
Bank transfers from credit customers
Cash
Cash received from credit customers
Discount allowed
Journal
Irrecoverable debts
Contra entries

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EXAM TIP
Your notes
Remember that cash sales are not recorded in the receivables ledger. Only enter cash received from
credit customers when the cash is used to make a payment towards an invoice.

WORKED EXAMPLE
Kimi maintains a full set of account records. She provides the following information for February
2024.

On 1 February 2024

Trade receivables ledger control account debit balance b/d 12 780

Trade receivables ledger control account credit balance b/d 150

Totals for February 2024

Credit sales 25 470

Cash sales 5 780

Credit sales returns 7 000

Cheques received by credit customers 18 450

Cash received by credit customers 1 400

Discount allowed 3 290

Interest charged to credit customers 860

Contra purchases ledger 1 050

Irrecoverable debts written off 870

At 29 February, the total amount that Kimi owed to her credit customers was $460.
Prepare the trade receivables ledger control account for February 2024. Balance the account and
bring down the balances on 1 March 2024.
Answer
Ignore the cash sales, as they do not affect the receivables ledger accounts.
Enter the balances and totals on the correct sides of the account.

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Transactions which increase the amount owed to the business appear on the debit side.
Credit sales Your notes
Interest
Transactions which reduce the amount owed to the business appear on the credit side.
Receipts from credit customers using cash or bank transfers
Sales returns
Discount allowed
Irrecoverable debts
Contra entries
On 1 March 2024, there will be a credit balance of $460; therefore, there will need to be a balance
c/d on the debit side on 29 February 2024.
Kimi
Trade Receivables Ledger Control Account

Date Details $ Date Details $

2024 2024
12 780 Balance b/d 150
Feb 1 Balance b/d Feb 1

29 Sales day book 25 470 29 Sales returns day book 7 000

29 Journal (interest) 860 29 Cash book (bank) 18 450

29 Balance c/d 460 29 Cash book (cash) 1 400

29 Cash book (discount allowed) 3 290

29 Journal (contra) 1 050

29 Journal (irrecoverable debts) 870

29 Balance c/d 7 360

39 570 39 570

Mar 1 Balance b/d 7 360 Mar 1 Balance b/d 460

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Trade Payables Ledger Control Account

Your notes
Trade Payables Ledger Control Account
Where do I find the information to complete a trade payables
ledger control account?
The books of original entry are used to find the totals
The purchases day book is used to find the total value of credit purchases
The purchases returns day book is used to find the total value of returned goods
The cash book is used to find the total values for:
Money paid to credit suppliers
Money refunded by credit suppliers
Cash discounts received from credit suppliers
The journal is used to find the total values for:
Interest charged by credit suppliers on overdue accounts
Contra entries against the sales ledger

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Your notes

EXAM TIP
The ledger accounts are not used when preparing control accounts. The information is taken from
the books of original entry.

Why might there be a debit balance in a trade payables ledger

control account?
A trade payables account will usually have a credit balance
This indicates that the business owes the credit supplier money
However, a trade payables account could have a debit balance
This indicates that the credit supplier owes the business money
Debit balances can occur when:
The business pays credit suppliers in advance
The business makes overpayments to credit suppliers
The business is owed refunds from the credit suppliers

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The business has paid for goods and then returned them
Debit and credit balances are totalled separately in the trade payables ledger control account
Your notes
This means there could be two opening balances and two closing balances
What is the layout of a trade payables ledger control
account?
The layout looks very similar to the layout of a trade payables ledger account
The main differences are:
There could be two opening balances
There could be two closing balances
Use the name of the book of original entry as the detail
Put more information in brackets

Entries on the debit side: Entries on the credit side:

Opening balance Opening balance

Money that credit suppliers owe Money owed to credit suppliers
Purchases returns day book Purchases day book
Credit purchases only Credit purchases
Cash book Journal
Bank Interest
Bank transfers to credit suppliers
Cash
Cash paid to credit suppliers
Discount received
Journal
Contra

EXAM TIP

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Remember that cash purchases are not recorded in the payables ledger. Only enter cash paid to
credit suppliers when the cash is used to make a payment towards an invoice.
Your notes

WORKED EXAMPLE
Mika is a trader. He has provided the following information

2023 $

1 March Trade payables ledger control account credit balance 17 150

Trade payables ledger control account debit balance 1 350

2024

29 February Totals for the year:

Credit purchases 231 200

Cash purchases 5 000

Bank payments to credit suppliers 210 600

Cash payments to credit suppliers 1 500

Returns to credit suppliers 6 400

Discount received 3 200

Contra entries 2 100

Interest charged by credit suppliers 800

Trade payables ledger control account credit balance ?

Trade payables ledger control account debit balance 450

Prepare the trade payables ledger control account for the year ended 29 February 2024. Balance
the account and bring down the balances on 1 March 2024.
Answer
Ignore the cash purchases, as they do not affect the payables ledger accounts.
Enter the balances and totals on the correct sides of the account.
Transactions which increase the amount the business owes appear on the credit side.

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Credit purchases
Interest
Transactions which reduce the amount the business owes appear on the debit side. Your notes
Payments to credit suppliers using cash or bank transfers
Purchases returns
Discount received
Contra entries
At the end of the month, there is a $450 debit balance. On 1 March 2024, there will be a debit
balance of $450; therefore, there will need to be a balance c/d on the credit side on 29 February
2024.
Mika
Trade Payables Ledger Control Account

Date Details $ Date Details $

2023 2023
1 350 Balance b/d 17 150
Mar 1 Balance b/d Mar 1

2024 2024
Purchases day book 231 200
Feb 29 Cash book (bank) 210 600 Feb 29

29 Cash book (cash) 1 500 29 Journal (interest) 800

29 Purchases returns day book 6 400 29 Balance c/d 450

29 Cash book (discount received) 3 200

29 Journal (contra) 2 100

29 Balance c/d 24 450

249 600 249 600

Mar 1 Balance b/d 450 Mar 1 Balance b/d 24 450

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