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Understanding Control Accounts

Control accounts summarize the accounts in subsidiary ledgers, specifically the Sales Ledger for debtors and the Purchases Ledger for creditors. They help in fraud deterrence, error location, and quick calculations of trade receivables and payables. Additionally, contra entries can be recorded when a customer is also a supplier, and various reasons can lead to credit or debit balances in these control accounts.

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kaythi.khaing.19842024
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19 views13 pages

Understanding Control Accounts

Control accounts summarize the accounts in subsidiary ledgers, specifically the Sales Ledger for debtors and the Purchases Ledger for creditors. They help in fraud deterrence, error location, and quick calculations of trade receivables and payables. Additionally, contra entries can be recorded when a customer is also a supplier, and various reasons can lead to credit or debit balances in these control accounts.

Uploaded by

kaythi.khaing.19842024
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd

Control Account

Control Account
• Not all the transactions done in a business are in cash.
• Now days, businesses do a lot more transactions in credit and thus there is a long
list of debtors and creditors.
• Since the bulk of entries are made in the accounts of debtors and creditors, these
two classes of accounts are taken out of the General Ledger and put in a
subsidiary ledger.
Control Account
• Subsidiary ledgers include
• Sales Ledger: Which contains all debtors accounts
• Purchases Ledger: contains all creditors’ accounts.
• This is where control account comes in…
• Control account is a summary of all the accounts in the subsidiary ledgers.
The summary of all accounts in the Sales ledger make up the Debtors control
account and the summary of all accounts in the Purchase Ledger is known as the
Creditors control account.
Control Account
• Control accounts may also be used to
• Act as a deterrent against fraud
• Locate errors made in the sale ledger and purchases ledger quickly and easily
• Calculate total trade receivables and total trade payables quickly
• Help in the preparation of trial balance
• Calculate credit sales and credit purchases in case of incomplete records
Control Account
• Contra entries
• A credit customer may also be a credit supplier in a business.
• Therefore, we may set off the lowest amount between the customer and the supplier.
• The double entry to record the contra entry between the purchases ledger and the sales ledger
is as follows:
• Debit – Purchases ledger control account
• Credit – Sales ledger control account
Control Account
• Credit balance in sales ledger
• The main reasons for the sales ledger control account to have a credit balance are:
• Overpayment made by the customer
• Advanced payment or deposit made by customer
• Return inwards made by customer after effecting payments
Control Account
• Debit balance in purchases ledger
• The main reasons for the purchases ledger control account to have a debit balance
are:
• Overpayment made by the business (overpayment made to supplier)
• Advanced payment or deposit made by the business
• Return outwards made to the supplier after effecting payments
Control Account
• Items not recorded in control account:
• Cash sales and cash purchases
• Provision for doubtful debts
• Return inwards made from cash sales
• Return outwards made from cash purchases
How to make Debtors Control Account
• Sales transaction takes place
• It is recorded in the Sales Journal
• From the Sales Journal entry is posted to the Sales Ledger.
How to make Debtors Control Account
How to make Debtors Control Account
How to make Debtors Control Account
Thank You

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