LETURE NOTE 5: CONTROLACCOUNT

DEFINITION
• A con trol accoun t i s a summary accoun t i n the gen eral l edger.
T hey show t he b a l a n ce of t ra n sa ct i on s d et a i l ed i n t he
corresponding subsidiary account.
Key Takeaways
• C o n t r o l a c c o u n t s a r e s u m m a r y a c c o u n t s t h a t m a ke u p t h e
general ledger and inform financial reporting.
• The control account balances are determined by the transaction
details of the associated subsidiary ledgers.

 CONTROLACCOUNT

Key Takeaways

• C o n tr o l a c c o un ts pr ovi d e a h i gh - l eve l pi c tur e o f a

c o m pa n y ’ s tr a n s a c ti o n r e c o r d s . I f th e b a l a n c e s i n th e
c o n tr o l a c c o un t d o n o t m a tc h th e s ub to ta l o f th e s ub -
ledgers, then there is an error that must be remedied.
• Common types of control accounts are accounts payable
a n d a c c o u n ts r e c e i va b l e , th o u g h th e i n d i vi d u a l c o n tr o l
accounts depend on a company’s unique profile.


 CONTROLACCOUNT

Key Takeaways
• A c o m p a n y t h a t s e l l s p r o d u c t s o n c r e d i t m ay
h av e m any t r ansact io ns in t h e acco u nt s
r e c e i v a b l e s u b - l e d g e r. T h e d e t a i l s o f t h o s e
t r ansact io ns liv e in t h e su b - le d g e r and t h e
balance is reported to the control account. The
control account for accounts receivable will only
sh o w t h e t o t al am o u n t t h at is o we d t o t h e
co m p any at a p o int in t im e wit h o u t all t h e
details of each customer’s transaction.
 CONTROLACCOUNT

Key Takeaways

• the details of every transaction, including the customer information, the

d e t a i l s o f t h e s a l e , a ny re f u n d s , re t u r n s , a n d t h e p a y m e n t t e r m s , a re
recorded and maintained by the accounts receivable sub-ledgers.
• T hose sub-ledgers are totaled for each reporting period, and the totals
make up the balance of the accounts receivable control account.
• In other words, the accounts receivable control account reflects the total
amount that a company is owed, while the its sub-ledger shows how much
each individual customer owes.


 CONTROLACCOUNT

Key Takeaways
• Co nt r o l acco unt i ng b o t h h e l ps pr o d uce
clean financial reports, and provides checks
and balances for accurate reconciliation. In
t h e cas e o f an acco u nt s r e ce i v ab l e co nt r o l
account , t he sub t ot al of t he cust ome r
balances in the sub-ledger must match up to
t h e co nt r o l acco unt . If i t d o e s no t , t h e n
t h e r e i s an e r r o r so m e w h e r e i n t h e b o o k s
that must be corrected.
 CONTROLACCOUNT

Types of Control Accounts

• With the double-entry accounting system,
accounts receivable, and accounts payable
are the common types of control accounts.

• Some common control accounts may include:

A c c ou n ts Rec ei va bl e, A c c ou n ts Paya bl e,
Inventory, Fixed Assets and Payroll.


 PURPOSE OF CONTROL ACCOUNT

• T h e i d e a o f a c o n t r o l a c c o u n t i s t o h a ve a s i n g l e m i r r o r a c c o u n t
w hich w ill give an idea of the balances contained in the individual
ledgers being controlled.
• Control accounts are used in accounting to ensure the accuracy of
financial [Link] purpose of these accounts is to:
• Provide a check on the math of individual transactions.
• Provide a means of reconciling errors.
• Serve as a summary report of the total balances for each sub-ledger.
• Ensure t h e sub si d i a ry a c c o unt ’ s a c c ura c y by c l a ri f y i ng a nd
re c h e c k i n g t h e i n d i vi d u a l a c c o u n t a n d t h e i r t r a n s a c t i o n s b e f o re
posting it with the subsidiary account or primary account
• P rovi d e a c o nve ni e nt t o t a l w h i c h c a n b e u s e d i mme d i a t e l y i n
extracting a trial balance or preparing accounts.
 TREATMENT OF CONTRA ITEMS

• A contra account is used in a general ledger

t o r e d u ce t h e v al u e o f a r e l at e d acco u nt
when the two are netted together. A contra
account's natural balance is the opposite of
t h e asso ci at e d acco unt . If a d e b i t i s t h e
nat ur al b al ance r e co r d e d i n t h e r e l at e d
account, the contra account records a credit.


 TREATMENT OF CONTRA ITEMS

A c o n t r a i t e m i n t h e c o n t ex t o f c o n t r o l a c c o u n t i s a
t r a n s a c t i on t ha t ha s a n of f s e t t i n g e f fe c t . A c on t r a
entry is therefore used where some debtors bal ances
are used to offset some creditors balances. Assuming a
d e b t o r i s ow i n g N 1 0 ,0 0 0 a n d a t t h e s a m e t i m e h e
ha p p e n e d t o b e c r e d i t or t o w hom t he or ga n i z a t i on i s
ow i n g N 5 0 0 0 t h r o u g h a n o t h e r t r a n s a c t i o n , i f i t i s
a g r e e d t h a t t h e N 5 0 0 0 ow e d h i m s h o u l d b e s e t t l e d
u s i n g t h e d e b t o f N 1 0 ,0 0 0 ow e d b y h i m , t h e e n t r y
required is :
Debi t cr edi tor s a ccoun t wi th N 50 0 0 a n d cr edi t
Debtors account with N5000
 TREATMENT OF CONTRA ITEMS

T his eliminates the N5,000 creditors balance

and reduces the debtors balances by N5,000.
as required in control accounts, similar entries
ar e s u b s e q u e nt l y p as s e d i n b o t h t h e d e b t o r s
and creditors control accounts as follows:
Debit Creditors control account with N5,000
and Cr e d i t D e b t o r s co nt r o l acco unt w i t h
N5,000
 Types of Contra Accounts

• There are four key types of contra accounts—contra asset,

contra liability, contra equity, and contra revenue.
• Contra asset: Account reported along with other assets that
naturally have a credit balance.
• Contra liability: Account reported along with other liabilities
that naturally have a debit balance.
• Contra equity: Account reported along with other equity
accounts that naturally have a debit balance.
• Contra revenue: Account reported along with other revenue
accounts that naturally have a debit balance.
•

 Types of Contra Accounts

C o n t r a a s s e t a c c o u n t s i n c l u d e a l l o w a n c e f o r
doubtful accounts and accumulated
d e pre ciation. Contra asse t accounts are
recorded with a credit balance that decreases
the balance of an asset. A key example of
A contra liability is an account in which activity
is r e co r d e d as a d e b it b al an ce an d is u se d t o
decrease the balance of a liability. The balance
of a contra liability account is a debit balance.
This account decreases the value of the liability.
 Types of Contra Accounts

co n t r a l i a b i l i t i e s i n cl u d e s d i s co u n t s o n n o t e s
o r b o n d s p aya b l e . C o n t r a l i a b i l i t i e s h o l d a
debit balance. Contra liability accounts are not
as popular as contra asset accounts.
Contra Liability a/c is not used as frequently
as contra asset accounts. It is not classified as
a liability since it does not represent a future
obligation.
 Types of Contra Accounts

 T he third contra type is contra equity.

T hese contras reduce the equity account
and carry a debit balance. Contra equity
reduces the total number of outstanding
shares on the balance sheet. T he key
example of a contra equity account is
Treasury stock, which represents the
amount paid to buyback stock.
 Types of Contra Accounts

 Last, for contra revenue accounts there are

sales discounts, sales allowances, or sales
returns. Contra revenue reduced gross
revenue, resulting in net revenue. T hese
contra revenue accounts tend to have a
debit balance and are used to calculate net
sales.
 ILLUSTRATION 1
From the following details relating to the operations of Hauwa Ltd,
prepare a debtors ledger control account.
N
Debtors Balances 1/1/2022 20,000
Credit sales for the year 270,000
Sales return 35,000
Cash from debtors 90,000
Cheues from debtors 100,000
Dishonoured cheues 10,000
Provision for bad debts 31/12/2022 30,000
Bad debt written off 4,000
Creditors ledger contra 7,000
 SOLUTION TO ILLUSTRATION 1
Hauwa Ltd
Debtors ledger control account for the year ended 31/12/2022
N N
Balance b/d 20,000 Returns inwards 35,000
Sales 270,000 Cash Received
90,000 Dishonoured Cheques 10,000 Cheques received
100,000 Bad debts
4,000
Creditors Ledger contra 7,000
Balance c/d
64,000 300,000 300,000
Balance b/d 64,000
 ILLUSTRATION 2

From the following details relating to the operations of

Kabir Ltd, prepare a creditors ledger control account.
N
Creditors Balances 1/1/2022 20,000
Credit Purchase for the year
200,000
Purchases return 30,000
Cash paid to creditors 80,000
Cheques paid to creditors 90,000
Discount Received 4,000
Ledger contra 7,000
 SOLUTION TO ILLUSTRATION 2

Kabir Ltd
Creditors Ledger control account for the year ended 31/12/2022
N N
purchases returns 30,000 Balance b/d
20,000
Cash paid to Creditors 80,000 Credit purchase 200,000
Cheques paid to creditors 90,000
Discount received 4,000
Ledger contra 7,000
Balance c/d 9,000
220,000 220,0
00
 ILLUSTRATION 3

F r o m t h e fo l l ow i ng d e t ai l s r e l at i ng t o t h e
o pe r at i o n o f K ab i r N i g . Lt d , P r e par e sal e s
ledger (Account Receivable) Control account
and P u r ch ase Le d g e r (Acco u nt P ayab l e)
Control Account.
 CONTINUE
N
Creditors Balance 1/1/20 22 (Credit) 33,20 0
Purchase 124,720
Returns Outward 340
Cash paid to clear customers’ credit 440
Sales ledger contra 720
Cash received to clear suppliers’ debit balance 80
Bad debt written off 1,20 0
Sales 210,280
Dishonoured Cheque 4,0 0 0
Creditors Balance 1/1/20 22 (Debit) 280
Discount Received 12 0 0
Bills Receivable 14,0 0 0
Returns Inward 3,20 0
Discount Allowed 5,0 0 0
Cash Received 195,0 0 0
Debtors Balance 1/1/20 22 (Debit) 28,0 0 0
Cash Paid to Creditors 117,160
Bills payable 2,20 0
Debtors Balance 1/1/20 22 (Credit) 80 0
Closing Balances:
Debtors Dr. Balance 23,280
Debtors Credit Balance 480
Creditors Credit Balance 320
Creditors Debit Balance 37,60 0
 SOLUTION TO ILLUSTRATION 3
Kabir Nig. Ltd
Sales Ledger(A ccount Receivable) control account for the year ended 31/12/2022
N N
Balance b/d 28,000 Balance b/d 800
Sales 210,280 Sales ledger contra 720
Cash paid to clear customer’ Cr. Bal. 440 Bad debt written off 1 , 20 0
Dishonoured Cheque 4,000 Bills receivable 14,000
Balance c/d 480 Return Inwards 3, 20 0
Discount A llowed 5, 0 0 0

Cash received 195,000
Balance c/d 23,280
243,200 243,200
 SOLUTION TO ILLUSTRATION 3

Kabir Nig. Ltd

Creditors Ledger(Account Payable) control account for the year ended 31/12/2022
N N
Bal ance b/d 280 Bal ance b/d 33, 200
R eturns Outwards 240 Purchase 124, 720
Sal es Ledger Contra 720 Cash received to cl ear suppl iers’ Dr. bal . 80
Cash paid to creditors 117,160 Bal ance c/d 320
Bil l s payabl e 2, 200
Discount received 120
Bal ance c/d 37,600
158, 320 158, 320