CONTROL ACCOUNTS
SIZWE M KALIPINDE
Skalipinde@[Link]
Main Objectives
• Definition
• The purpose
• Importance of control accounts
• Types:
i. Purchases ledger
ii. Sales ledger control accounts
Definition
• A control account is an account in the general ledger which keeps a record of a total
number of similar individual items.
• Sometimes referred to as TOTAL ACCOUNTS
• For large entities, the control account forms part of the double entry
• Control accounts contain totals instead of amounts relating to individual debtors or
creditors. They allow one to see the totals, without getting into too much details from
individual accounts.
• As we will see later on, the control account is also a useful reconciliation tool between the
detailed sales and purchases data, and the totals eventually posted to the GL.
Purpose of Control Accounts
1. To facilitate preparation of interim and final accounts such as interim profit and loss and
balance sheet. They facilitate the derivation of the sale, purchases, debtors and creditors
figures.
2. To facilitate the correction of errors in the ledgers. Errors are easily identified by
comparing the sum of the balances in the ledgers with the balances of the control
account.
3. To reduce the possibility of fraudulent entries.
4. To act as internal check on accuracy of debtors. They thus provide a guarantee of
assurance to the management on the accuracy of the debtors figures.
5. To act as an aid in balancing the accounts
Importance of Control Accounts
a) Provide a check on the accuracy of entries made in the personal accounts
in the sales and purchases ledger.
b) Assist in location of errors
c) Provide an internal check where there is segregation of duties
d) Assist in extracting closing receivables, and payables ledger balances for use
in the trial balance and statement of financial position.
TYPES OF CONTROL ACCOUNTS
• Common types include:
1. The receivables (debtors’) control Account
2. The payables (creditors’) control accounts
3. Stock control account
All these summarize outstanding credits owed and payments due from debtors
and also use a stock control account to summarize transactions related to
inventory.
❑ THE RECEIVABLES (SALES
LEDGER) CONTROL ACCOUNTS
• This is an account which keeps a record of all trade receivables in total. This is also known as
Sale Ledger Control Account
• A business can have numerous trade receivables and each of them will have his/her account in
the sales ledger.
• One special account will be needed to control the entries in all the trade receivables accounts, that
is, the receivables control account
• The amount that is transferred to the receivables control account is the total in the sales day
book.
• Remember that the total in the sales day book is transferred to the sales account in the general
ledger. If control accounts are being used, this total has to be transferred to the receivables
control account as well.
Continues… receivables control account
• Any item that is recorded in one or more receivables’ accounts in the sales ledger is
also recorded in total in the receivables control account. It is important to know on
which side of the control account, entries will be made.
• For instance, the following items will have to be totaled and entered in the
receivables control account on the debit side:
i. Total of credit sales from the sales day book
ii. Total of customers’ dishonored cheques and refund made to customers
iii. Total of any interest charged on overdue accounts of customers
Continues… receivables control account
• For instance, the following items will have to be totaled and entered in the
receivables control account on the credit side:
i. Total cash/cheques received from customers
ii. Total cash discount allowed to customers
iii. Total of sales return made by the customers
iv. Total debts written off (irrecoverable)
Example: Receivables Control Account
Source: Frank Wood
Solution
❑ TRADE PAYABLES (PURCHASES
LEDGER) CONTROL ACCOUNT
• This is an account which keeps a record of all trade payables in total. A business can have
numerous trade payables and each of them will have his/her account in the purchases ledger.
• One special account will be needed to control the entries in all the trade payables’ accounts, that
is, the payables/purchases ledger control account.
• The amount that is transferred to the payables control account is the total in the purchases day
book.
• Remember also that the total in the purchases day book is transferred to the purchases account in
the general ledger.
• If control accounts are being used, this total has to be transferred to the payables control account
as well
Continues… trade payables control account
• Any item that is recorded in one or more payables’ accounts in the purchases
ledger is also recorded in total in the payables control account.
• For instance, the following items will have to be totaled and entered in the
payables control account on the debit side:
i. Total of cash/cheques paid to suppliers
ii. Total of purchases returns made to suppliers
iii. Total of any discounts received from suppliers
Continues… trade payables control account
• The following items will have to be totaled and entered in the receivables
control account on the credit side:
i. Total of credit purchases from suppliers
ii. Total of any interests charged by suppliers on overdue accounts
Example: Payables Control Account
• Mwewawo is in a business of buying and selling goods on credit. The following information is made available for the
month of March 2010.
K
Sales 65,000
Inventory – 1 March 3,400
Trade Payables – 1 March 1,700
Payment to suppliers 74,000
Discount Received 300
Inventory – 31 March 2,900
Purchases 47,000
Expenses 2,500
Continues… purchases ledger control account
Required:
i. Prepare the purchases ledger control account
(for your practice)
CONTRA ENTRIES
• In a situation where one person/entity becomes both a customer and a supplier, for
the purposes of control accounts, the balances in the two ledgers, that is the sales
and purchases ledger, are off set to come up with one balance in the control
account.
• The double entries required for the set offs are:
Dr: Payables Control Account
Cr: Receivables Control Account
With the amount involved
Working Example
Source: Frank Wood Chp 31
The financial year of The Better Trading Company ended on 30 November 20X7. You
have been asked to prepare a Receivables Control Account and a Payables Control
Account in order to produce end-of-year figures for receivables and payables for the
draft final accounts.
Note: According to the audited financial statements for the previous year receivables
and payables as at 1 December 20X6 were £26,555 and £43,450 respectively.
You are able to obtain the following information for the financial year from the books
of original entry:
Continues… Example
Solution
1. Trade Receivables Control Account
Solution
2. Trade Payables Control Account
CONTROL ACCOUNTS
THE END