Control Accounts
Control accounts are general ledger accounts that summarise a large number of transactions.
As such they are part of the double entry system. They are used to prove the accuracy of
the ledger accounting system. They are mainly used with regard to receivables and payables
balances.
Accounting entries for credit sales and purchases
When a company transfers the daily total of the sales book into the general ledger the double
entry is:
Dr Receivables ledger control account
Cr Sales revenue.
When they transfer the total of the purchase day book the double entry is:
Dr Purchases
Cr Payables ledger control account
Memorandum accounts
Whilst maintaining control accounts most businesses will maintain what is referred to as a
'memorandum.' This is a separate list of individual receivable and payable amounts due from
each customer and to each supplier, respectively. This simple 'list of balances' is used as a record
so that companies know how much each customer is due to pay and how much they are due to
pay each supplier. This assists with credit control and cash flow management.
A key control operated by a business is to compare the total balance on the control account at
the end of the accounting period with the total of all the separate memorandum balances. In
theory they should be identical. This is referred to as a control account reconciliation.
Illustrative control accounts
Receivables ledger control account
Balance b/f Balance b/f
Credit sales (SDB) Sales returns (SRDB)
Bank (CB)
Bank (CB) dishonored cheques Irrecoverable debts (journal)
Bank (CB) refunds of credit balances Discounts allowed
Interest charged Contra
Balance c/f
Balance c/f
Balance b/f Balance b/f
¶
Payables ledger control account
Balance b/f Balance b/f
Bank (CB) Credit purchases (PDB)
Purchases returns (PRDB) Bank (CB) refunds of debit balances
Discounts received
Contra
Balance c/f Balance c/f
Balance b/f Balance b/f
Abbreviation key:
SDB Sales day book
PDB Purchases day book
SRDB Sales returns day book
PRDB Purchases returns day book
CB Cash book
Note that any entries to the control accounts must also be reflected in the individual
memorandum accounts.
Contra entries
The situation may arise where a customer is also a supplier. Instead of both owing each other
money, it may be agreed that the balances are contra’s, i.e. cancelled.
The double entry for this type of contra is:
Dr Payables ledger control account
Cr Receivables ledger control account
The individual receivable and payable memorandum accounts must also be updated to reflect
this.
Credit/debit balances in the wrong account
Sometimes the receivables ledger control account may show a credit balance, i.e. we owe the
customer money. These amounts are usually small and arise when:
The customer has overpaid.
Credit notes have been issued for fully-paid-for goods.
Payment is received in advance of raising invoices.
The payables ledger control account may show a debit balance for similar reasons.
Technically such balances should not exist and should be transferred to the correct account.
Thus, a credit in a receivable account should be adjusted as follows:
Dr Receivables
Cr Payables
Debit balances in the payable’s ledger will be adjust using exactly the same double entry.
CONTROL ACCOUNT RECONCILIATIONS
Introduction
The reconciliation is a working to ensure that the entries in the sales and purchase ledgers (the
memorandums, or list of individual balances) agree with the entries in the control accounts. The
totals in each should be exactly the same. If not, it indicates an error in either the memorandum
account or the control account. All discrepancies should be investigated and corrected.
The reconciliation is a working to ensure that the entries in the ledger accounts agree with the
entries in the control account. The two should have the same closing balance as ideally, they
have had exactly the same entries in both accounts.
A receivables ledger reconciliation compares the total of the accounts in the receivable’s
ledger with the balance on the receivable’s ledger control account.
A payables ledger reconciliation compares the total of the accounts in the payable’s
ledger with the balance on the payable’s ledger control account.
If there are differences between the control account and the ledger accounts, they must be
identified and reconciled. Differences may arise due to:
errors in the receivables or payables ledger
errors in the receivables or payables ledger control accounts
errors in both the control account and ledger account
Preparing a control account reconciliation
The format of a control account reconciliation, in this case for receivables, is as follows:
Balance given to the question Adjustments for errors
Adjustments for errors Revised balance c/f
Reconciliation of individual receivables balances with control account balance
Tsh
Balance as extracted from list of receivables X
Adjustments for errors X/(X)
–––––
Revised total agreeing with balance c/f on control account X
Illustration – Preparing a control account reconciliation
Supplier statements
These statements are issued to a business by suppliers summarise the transactions that have
taken place during a given period, and also to show the balance outstanding at the end of the
period.
Their purpose is to ensure that the amount outstanding is accurate and agrees with
underlying documentation.
The payables (individual) ledger account should agree with the total of the supplier
statement.
As such, these are a further way to prove the accuracy of accounting records.
Supplier statement reconciliations
It is also possible to reconcile a supplier statement to the control account.
The purpose for doing this is as follows:
before any payments are made to suppliers it is important to ensure that the supplier’s
statement is correct else, we could make over or under payments.
each invoice and credit note listed on the statement should be checked to the original
documentation for accuracy.
once accuracy has been established, it is then possible to decide which invoices need
paying and when by
REVIEW QUESTIONS
QUESTION 1.
You are required to prepare a sales ledger control account from the following for the month of
November:
2024 April 1 TSHS
Debit balances on sales account 475,000
Totals for April:
Sales journal 590,000
Returns inwards journal 46,000
Cash sales 614,000
Cheques received from credit customers 387,000
Cheque received from credit customer (Included in
Above figure) later Dishonored) 26,000
Cheque paid to credit suppliers 469,000
Discount received 34,000
Discounts allowed 13,000
Bad debts written off 32,000
Interest charged to credit customers 8,000
Contra entry to purchase ledger 150,000
May 1,
Debit balances on sales ledger control account ?
Credit balance on sales ledger control account 21,000
QUESTION 2.
The trial balance of Mwezi Books Ltd revealed a difference in the books. In order that the error(s)
could be located it was decided to prepare purchases and sales ledger control accounts. From
the following prepare the control accounts and show where an error may have been made:
2008 Jan 1 TSHS
Purchases ledger balances 19,420
Sales ledger balances 28,227
Totals for the year 2008 Purchases journal 210,416
Sales journal 305,824
Returns outwards journal 1,452
Returns inwards journal 3,618
Cheques paid to suppliers 205,419
Petty cash paid to suppliers 62
Cheques and cash received from customers 287,317
Discounts allowed 4,102
Discounts received 1,721
Balances on the sales ledger set off against balances in the purchases ledger 640
Dec 31 The list of balances from the purchases ledger shows a total of 20,210 and that from the
sales ledger a total of 38,374
QUESTION 3.
From the following figures, compile debtors ledger and creditors ledger control accounts for the
month, and ascertain what the net balances of the respective ledgers should be on 31 January
20X0.
Balances on 1 January 20X0 TSHS
Debtors ledger - Dr 46,462
- Cr 245
Creditors ledger -Dr 1,472
-Cr 25,465
Total for the month to 31 January 20X0
Purchases 76,474
Sales 126,024
Purchase returns 2,154
Debtors accounts settled by contra accounts with creditors 455
Bad debt written off 1,253
Discounts and allowances to customers 746
Cash received from customers 120,464
Cash discount received 1,942
Cash paid to creditors 70,476
Cash paid to customers 52
Question 4
Amira provides the following information for September 2023.
Purchases ledger balances, 1 Sept 2023 – Debit Tsh 93,000
– Credit Tsh 4,210,000
Activities during the half-year to 30 September 2023. (Tsh)
Purchases on credit 5,366,000
Cash purchases 1,469,000
Cheque paid to credit supplier 3,705,000
Cheque received from credit customers 6,102,000
Discounts received 95,000
Discount allowed 204,000
Returns to credit suppliers 197,000
Interest charged by supplier on overdue account 12,000
Cash refund from credit suppliers 150,000
Contra entry 494,000
1st October 2023
Debit balances in purchase ledger account 68,000
Credit balances in purchase ledger account ?
Required: Prepare the Purchase ledger control account for the month of September 2023.
QUESTION 5
The financial year of The Better Trading Company ended on 30 November 20X7. You have been
asked to prepare a Total Debtors Account and a Total Creditors Account in order to produce end-
of-year figures for Debtors and Creditors for the draft final accounts.
You are able to obtain the following information for the financial year from the books of original
entry: £
Sales – cash 344,890
– credit 268,187
Purchases – cash 14,440
– credit 496,600
Total receipts from customers 600,570
Total payments to suppliers 503,970
Discounts allowed (all to credit customers) 5,520
Discounts received (all from credit suppliers) 3,510
Refunds given to cash customers 5,070
Balance in the sales ledger set off against balance in the purchases ledger 70
Bad debts written off 780
Increase in the provision for bad debts 90
Credit notes issued to credit customers 4,140
Credit notes received from credit suppliers 1,480
According to the audited financial statements for the previous year debtors and creditors as at 1
December 20X6 were TSHS 26,555 and TSHS 43,450 respectively.
Required: Draw up the relevant Total Accounts entering end-of-year totals for debtors and
creditors.