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Control Accounts Worked Examples

Control accounts are master accounts that control groups of related subsidiary accounts. They record the total value of transactions of a particular type, such as sales, purchases, or VAT. Common control accounts include the sales ledger control account, purchase ledger control account, and VAT control account. The balance in a control account should always equal the total of its related subsidiary accounts. Reconciliations ensure the accounts are in balance and help identify any errors.
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67% found this document useful (3 votes)
2K views2 pages

Control Accounts Worked Examples

Control accounts are master accounts that control groups of related subsidiary accounts. They record the total value of transactions of a particular type, such as sales, purchases, or VAT. Common control accounts include the sales ledger control account, purchase ledger control account, and VAT control account. The balance in a control account should always equal the total of its related subsidiary accounts. Reconciliations ensure the accounts are in balance and help identify any errors.
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Control Accounts

What is a Control Account?

A Master Account which controls a number of subsidiary accounts


(Memorandum accounts).

A control account records the total value of transactions of a particular type.

Three commonly used control accounts are:

 Sales Ledger Control Account


 Purchase Ledger Control Account
 VAT Control Account

Each control account is a General Ledger Account in the accounting system.

The Control Account at any time should be equal to the total of the subsidiary
accounts. Any differences in the two totals should be explained, and where
the differences are due to errors, these must be corrected. Corrections will be
to either the control account or the subsidiary accounts.

A Sales Ledger Control Account will typically be used to record the following
transactions:

Sales Ledger Control Account .

Date £ Date £
Balance b/d X Sales Rtns X
Sales X Contra Entries X
Returned Cheques X Disc Allowed X
Interest to customers X Cash Rec’d X
Bad Debts X
Balance c/d X
X X

Balance b/d X
A Purchase Ledger Control Account will typically be used to record the
following transactions:

Purchase Ledger Control Account .

Date £ Date £
Purchase Rtns X Balance b/d X
Disc Rec’d X Purchases X
Cash Paid X
Contra Entries X
Balance c/d X
.
X X

Balance b/d X

Carrying out a Reconciliation

The steps in a reconciliation of a sales ledger control account balance to the


balances on the debtors account in the sales ledger are as follows. (The same
steps should be applied to reconcile the purchase ledger control account with
the balances on the supplier accounts In the purchase ledger)

1. Compare the balance on the sales ledger control account with the sum
of the balances on the individual customer accounts. If there is a
difference one or more errors or omissions has occurred.
2. Identify the errors or omissions and decide whether the error has
occurred in the control account or in the individual customers
subsidiary account.
3. Once the error has been identified, the appropriate correction should
be made.

Why do we use control accounts?

 They give instant information to management on the total of


receivables/payables/VAT.
 Make fraud more difficult
 In helping to locate errors

Note. Reconciliations do have limitations as it cannot pick up all errors. If the


correct amount has been entered into the wrong customers’ subsidiary
account this will not be identified through the reconciliation process.

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