of aledger.
is an account which checks the arithmetical accuracy
account Receivable s and
Control Account:Control procedure of checking all the individual Trade
Balance, Control account is a
Unlike Trial risk ot traud or any sort of
prepared to check any error
and minimize the
Trade Payables account. It is
unethical activity by employees.
accounts are:
The twO most common control contro! account/total Trade Receivahle
Account /Trade Receivable s ledger
1. The Trade Receivable Control
Saccount Payables account.
Payable Control Account/ Trade Payables ledger control account/ total Trade total
2. The Trade as the individual ledger accounts which it controls, but in
contains the same information
A controlaccount
Purpose of controlaccount: purchases ledgers.
Toact as a check on the accuracy of the totals of the balances in the sales and
1. is being
and Trade Payables quickly when a trial balance
2. To provide totals of Trade Receivable s
prepared.
ledgers in which errors have been made when there is a difference on the trial balance.
3. Toidentify the
as an internal check on the work of the sales and purchases clerks to detect error and deter
4. To act
fraud, under the charge of a responsible person.
Reasons/advantages if having controlaccount:
ledger accounts.
1. To check or find out the arithmetical accuracy in sales ledger or purchase
trial balance is prepared,
2. Provides total Trade Receivables and Trade Payables balance when the
helps to avoid the misunderstanding with the customers and suppliers.
Disadvantages/ Limitation of control accounts:
1. Itcan locate errors butcannot detect the error.
2. It is unabie to check all types of errors (such as error of omission, error of principal).
Exam Questions
Exam questions will ask you to prepare a Trade Receivable (sales) ledger control account or a Trade
Payables(purchase) ledger control account. This can be either a separate question or as part ofa question on
incomplete entry method . In the latter case (for example) from the total Trade Receivable account you will
be asked to find either credit sales or closing Trade Receivable s balance.
Top Tip:
Always think of the Control Account as a single Trade Receivable or a single Trade Payables
account. Youwill then easily work out which item goes on which side!
A Trade Receivables account
£
Balance b/d 100 Return inward 10
Sales (Revenue) 200 Bank 95
Discount allowed 5
Balance cld 190
300 300
Balance b/d 190
The above Trade Receivable 's is part of thc double entry system and cach entry shown
has its double entry
on the opposite side of the named account
Other items that could appear in single Trade Receivable s accounts and therefore in a
total Trade Receivable
s aCCount are : Irecoverable debt, dishonoured cheque etc.
Please remem ber :
The total Trade Payables account is the opposite way around and includes items like
discount
received, purchases, and return outward.
An exam question may ask you to remove the small balance in aTrade Receivable ledger control
account by transferring it to the Trade Payables ledger.
Trade Receivable Control Account:
Anaccount which summarises the customer accounts (Trade Receivable s ) in the sales ledger
Trade Payable ControlAccount :
An account which summarises all the suppliers accounts (credit) in the purchase ledger
Source of information for items appearing in the Trade Receivable Control Account.
Opening Trade receivable List of Trade Receivables' balances drawn up at the end of the previous
(Trade Receivable s) period.
2 Credit sales Sales day book total
Sales return Total from sales return day book
4 Cheque received Cash book : Bank column on debit (received)side. List extracted or
total of a special column for cheques which have been included in the
cash book.
5 Cash received Cash book: Cash column on debit (received) side. List extracted or
total of special column which has been included in the cash book.
6 Discount allowed Total of the discount allowed column in the cash book.
7 Closing Trade Receivable s List of Trade Receivable s' balance drawn up at the end of the period.
Irecoverable debt written off General journal or Irrecoverable debt account
Set off or contra entries General journal.
10 Interest charged to Trade Interest received account.
Receivable s
Source of informationfor items appearing in purchase ledger :
1 Opening Trade Payables List of Trade Payables' balances drawn up at the end of the previous
(Trade Payables) period.
Total from purchase day book.
Credit purchase
3 Purchase returns Total of purchase return day book.
total
Cash book: Bank column on credit (payment)side. List extracted or
Cheques paid in the cash book.
of a special column which has been included
List extracted or total
5 Cash paid Cash book: Cash column on credit(payments) side.
included in the cash book.
of special column which has been
the cash book
6 Discount received Total of discount received column in
drawn up at the end of the period.
7 Closing Trade Payables List of Trade Payable's balance
General journal.
& Set off or contra entries
&Cont
difference between Trial Balance of the ledger account and
Whatis the similarities and check the arithmetical accracy
Similarities : Both trial balance and control account
both are prepared tocheck the fraud. control account
ledger account where as only check
the
Differences: Trial balance checks the balance of all
the balance of Trade Receivable s and Trade Payables account. as a Trade
be a Trade Receivable as well Payable..
Set off / Contra entries: Sometimes the same person may from one ledger is transferred
. the smaller amount in his account
for the business. Atthe end of the month this transter 1s Known as set of
account inthe ledger with large amount, The entry passed for recording
his
contra entry.
Contra entries in control account.
suppliers. In this case, there will be an account for
Some tirms may find that they have customerswho are also
and in the purchases ledger (as a supplier). It could
tis irm or person both in the sales ledger (as a customer)
cheque to each other, the amounts owing (both
appear to be common sense that rather than both parties send a
someone ES who also owes you £10,
to and by the firm) should be partly offset against each other. If you owe
settlement of both debts. This can also
then it would be sensible for you to offset the debt and accept £5 in full
be achieved with firms and are known as set-offs.
As a general rule, set-ofis willappear in both control accounts and on the following sides:
In the Trade Receivable Control Account - on the credit side
In thepurchases ledger control account - on the debit side
These are also known as Inter Ledger transfer or Set- Offs.
Example : Rachel Provides the following information.
2012 May 15 Sold Inventory , 190 on credit Robi stores.
22 Bought Inventory, 320, on credit from Robi Stores.
30 The balance of the two accounts for Robi Stores were set-off and Rachel sent a cheque
for the remaining balance.
Record the above transactions in the account of RobiStores in the sales ledger and in the purchase ledger.
Rachel
Trade Receivale ledger
Robistores Account
Date Details Date Details
2012 2012 Transfer to
May 15 Sales 190 May-30 Purchase ledger 190
190
190
Trade Payable ledger
Robi Stores Account
Date Details
Date Details
2012
2012
May 30 Sales Ledger 190 May-22
Bank Purchase 320
130
320
320
Key'
ATrade Receivable Control Account resembles the
but contains transactions affecting account ofa Trade Receivables (Trade
all Trade Receivables. Receivable )
Control accounts are considered as total
Receivales ledger control is also known accounts.
as sales ledger control account or
Payable's ledger control account is also known total Receivables account.
Balance in Trade Receivable Control as Trade Payable Control ACCount or total Payables account.
and balance in purchases ledger controlAccount is the total balance of Trade Receivables at the year end
Cash sales and cash purchases are not account is balance of the total payables at the year end.
The doubie entry to record set off fromrecorded in the control account.
Control Account and to credit in the purchases ledger to sales ledger is to debit in the Trade Payable
Trade Receivable Control Account.
Dishonored cheque which was received from Trade Receivable s is shown in the debit side of
Receivable Control Account. the Trade
Interest charged by suppliers and refunds received
in the credit side of purchases from suppliers for overpayments to them are
ledger control account. recorded
Provision for Irrecoverable debt is not included
in Trade Receivable Control
Small balance ina control account Account.
Ifa business is both a customer and a represents advance payments, overpayments etC.
the sales ledger account to the supplier, a contra entry may be made to transfer a
purchase ledger account or vice versa. balance trom
Format
Trade Receivable Control Account
Details
Amount Details Amount
Balance b/d (dr)
Credit sales
Balance b/d(cr) ***
Cash/Cheque received from Trade Receivable s ***
Cheque dishonored Discount allowed **
Cash refund to customer **
Return inward **
Interest charged to customer Irrecoverable debts ***
Set-off/Contra ***
Balance cld (cr) Balance c/d(dr) ***
***
The debit balance in the Trade Receivable Control Account is the amount of closing Trade Receivable s. The credit
balance is the amount owed to Trade Receivable s by the firm because of
1. Advance payment receipt
2. Cash returned
3. Inventory returned after account was settled.
Trade Payable Control Account
Details Amount Details Amount
***
Balance b/d (dr) Balance b/d(cr)
Cash/ Cheque paid to Trade Payables Credit Purchases
Discount received Interest charged by Trade Payables
Return outward
Set offl/contra
Balance c/d(dr)
Balance cd (cr)
Account is the amount of closing Trade Payables. The
debit balance
ne credit balance inthe Trade Payable Control
the firm because of:
eamount owed bythe Trade Payables to
I. Advance payment paid to them.
2. Cash refund from Trade Payables. settled.
account was
J. Inventory returned after