CONTROL ACCOUNTS

At the end of an accounting period the personal accounts in the sales ledger and the
purchases ledger are combined under the debtors schedule and the creditors schedule,
thus giving a summary figure for debtors and creditors.

In the event that there are numerous accounts in the each of these ledgers, an attempt
may be made to ascertain that the entries in each ledger account are correct. This is
done with the use of a control account. This is an internal audit system that verifies
the accuracy of the entries in each of the ledger. Hence the sum of the personal
accounts in each ledger should be the same of the sum of all the input subsidiary
records and double entries made to that set of ledger account.

For example Given that entries to the customers’ accounts in the sales ledger are made
from credit sales, return inwards, money collected from customers, and discount
allowed customers. Then the total of the sales ledger accounts should correspond with
the total of the sales journal, return inwards journal, and the relevant entries in the
cashbook.

PURPOSES OF THE CONTROL ACCOUNTS

1. Provide a check of the accuracy of entries made in the personal accounts in

the sales ledger and purchases ledger

2. Assist in locating errors early in the accounting period. Control accounts may
be conducted periodically - daily, weekly, etc, so that early detection of errors
can be made.

3. By separating the double entry book keeping activity from the control or check
of the input records, there is an internal audit checking system.

4. Ascertain missing figures such as total credit sales, or credit purchases

THE SALES LEDGER CONTROL ACCOUNT

The sales ledger control account ( SLCA ) is used to verify the balance in the sales
ledger accounts. It is also called the total debtors control accounts. Items used to
prepare the SLCA include
- sales journal
- return inwards journal
- bad debts written off or recovered
- cash collected from credit customers
- customers’ cheques dishonoured
- discount allowed to customers
- amounts set off against purchases ledger
-

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The entries in the SLCA correspond with the entries as per each customer’s account
SLCA
1. Bal b/d 4. Total Bad Debts w/o
2. Total Cr Sales 5. Payment Rec’d
3. Dishonoured Cheques 6. Discounts Allowed
7. Set Off against PL
8. Total Return Inwards
9. Bal c/d
( same as total debtors in SL)

Note that while the sales ledger accounts generally have Dr balances, there may be a
few accounts that carry credit balances. This may be due to advance payments by
customers, and payments and refund of goods resulting in a credit to the clients’
accounts.

Note also that the control account would not include cash sales or other items that do
not affect the personal accounts in the sales ledger.

THE PURCHASES LEDGER CONTROL ACCOUNT

The purchases ledger control account ( PLCA ) is used to verify the balance in the
purchases ledger accounts. It is also called the total creditors control accounts. Items
used to prepare the PLCA include
- purchases journal
- return outwards journal
- cash paid to credit suppliers
- cheques to suppliers subsequently dishonoured
- discount received from suppliers
- amounts set off against sales ledger

The entries in the PLCA correspond with the entries as per each supplier’s account
PLCA
4. Payments to Suppliers 1. Bal b/d
5. Discount Received 2. Total Credit Purchases
6. Return Outwards 3. Cheques Returned
7. Set Off Against SL
8. Bal c/d
(same as total creditors in PL)

As with the SLCA, the PLCA may also have balances on either sides as some
suppliers’ account may carry a Dr balance. This may arise from overpayment made to a
supplier or a payment with goods returned which will be debited to the suppliers’
account. Also, the control account would not include cash purchases or other items that
do not affect the personal accounts in the purchases ledger.

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LECTURE QUESTION 1

From the following data, prepare the SLCA :

June 1 Sales Ledger Balance b/d 4936

Totals for the month :

Sales Journal 49,916
Return Inwards Journal 1,139
Payments Received from Customers 46,490
Discounts Allowed 1,455

June 30 Sales Ledger Balance c/d 5,768

SLCA
Bal b/d 4,936 Payment Rec’d 46,490
Total Cr Sales 49,916 Discounts Allowed 1,455
Total Return Inwards 1,139
Bal c/d 5,768
-------- --------
54,852 54,852
===== =====
Bal b/d 5,768

LECTURE QUESTION 2

From the following data, prepare the SLCA and the PLCA

May 1 Creditors 7,418

Debtors 2,176

Totals or the Month

Credit Purchases 10,260
Credit Sales 21,370
Amount set off against both ledgers 200
Payments made to suppliers 16,000
Cash received from customers 20,410
Discounts Received 310
Discounts Allowed 204
Return Outwards 179
Return Inwards 184

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 SLCA
Bal b/d 2,176 Payment Rec’d 20,410
Total Cr Sales 21,370 Discounts Allowed 204
Set Off against PLCA 200
Total Return Inwards 184
Bal c/d 2,548
--------- ---------
23,546 23,546
====== =====
Bal b/d 2,548

PLCA
Payments to Suppliers 16,000 Bal b/d 7418
Discount Received 310 Total Credit Purchases 10,260
Return Outwards 179
Set Off Against SLCA 200
Bal c/d 989
-------- -----------
17,678 17,678
===== ======
Bal b/c 989

ERRORS DETECTED BY THE CONTROL

The balance obtained in each of the control accounts should be the same as the sum of
the corresponding ledger accounts. In the event that this is not so, there apparently there
are errors in either the postings to the ledger accounts, or in the totals of the subsidiary
records. A more in-depth check would be required to locate and correct the errors.

Once located, am attempt will be made to have them corrected. The ledger accounts
balances would be adjusted based on those errors that affected them, while the
respective control accounts would be adjusted based on the errors associated with them

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LECTURE QUESTION 3

Steve Harmison’s sales ledger accounted to $12,802 while the SLCA had a balance of
$12,550. Upon investigation, the following errors were located :

a. One page of the sales daybook totaling 850 was not included in the control
account.

b. A debtor’s account with a balance of 300 was not included in the schedule

c. Cash received of 750, was posted to the customers account as 570

d. Discounts allowed totaling 100 had not been entered in the control account

e. A personal account balance had been under-casted by 200

f. An amount of 400 as set off against the purchases ledger was not included
in the control accounts

g. Cash of 250 received from a customer, was Dr to his personal account

h. A bad debt of 500 had not been entered in the control account

i. Discounts of 50 received from a supplier, Bell Gungo Factory, was Dr to Bell’s

sales ledger account

j. Return inwards valued at 200 had not been included inn the control account

k. Cash 80 received from a customer, was posted to his account as 8

l. A cheque for 300 from a customer, and subsequently dishonoured by the

bank, was not included in the control account

Required

a. Show the adjustments to the Debtors’ Schedule

b. Show the adjustments to the SLCA

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SOLUTION

a. Adjustment to the Debtors Schedule

Bal as per original calculation 12,802

Add : Debtor account omitted (a) 300

Debtor account undercasted (e) 200 500
------ ---------
13,302

Less : Difference in Cash Recd ( c) 180

Cash incorrectly posted ( h) 500
Error with Discount Received (i) 50
Difference in cash Recd ( k) 72 802
------ ------

Adjusted Debtors Schedule Balance 12,500

=====

b. Adjustment to the SLCA

SLCA
Bal b/d 12,550 Discounts Allowed (d) 100
Cr Sales Omitted (a) 850 Set Off against PLCA (f) 400
Dishonoured Cheque (l) 300 Bad Debts (g) 500
Return Inwards (j) 200
Bal c/d 12,500
--------- ---------
13,700 13,700
====== =====
Bal b/d 12,500

TUTORIAL QUESTIONS

1. Explain the purposes of the control accounts

2. Explain the principle of a set off

3. What are some reasons for a sales ledger account having a credit balance ?

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4. At January 1 the total of the sales ledger accounts was 52,500. During the
year the firm collected 85,000 from credit customers, and at the end of the
year the sales ledgers totaled 45,000. How much was sold on credit to the
customers during the year ?

5. At January 1 the total of the purchases ledger accounts was 30,250, while at
December 31 it was 35,300. During the year the firm paid out 63,500 to
credit supplier, while enjoying cash discounts of 6,500. How much was
purchased on credit during the year ?

6. Prepare the sales ledger control account from the following details :

April 1 Sales Ledger balance 4,396

Totals for the month

Sales Journal 50,456
Return Inwards Journal 1,139
Cash received from Cr customers 46,490
Discounts Allowed 1,455
Set off against PL 259
Bad Debts written off 99

April 30 Sales Ledger balance 5,410

7. From the following balances prepare the purchases ledger control accounts

June 1 Purchases Ledger balance 34,500

Totals for the month

Purchases Journal 142,257
Return Outwards Journal 5,000
Cheques paid to suppliers 75,000
Discounts Received 2,130
Refund from supplier 260
Set off against SL 2,200

June 30 Purchases Ledger balance 92,687

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8. The following data was obtained from the books of AMLA Trading
Enterprise :

January 1 Bal b/d Debtors Dr 45,000 Cr 1200

Creditors Dr 3,900 Dr 25,000

Totals for the Year

Credit Sales 120,000
Cash Sales 70,000
Credit Purchases 95,000
Cash Purchases 40,000
Sales Returns 5,000
Purchases Returns 2,500
Discount Allowed 700
Discounts Received 1,200
Bad Debts 2,700
Refund to customers 1,100
Refund from suppliers 3,000
Payment to credit suppliers 39,000
Receipts from credit customers 65,000
Dishonoured Cheques from customers 7,000

Dec 31 Bal c/d Debtors Dr 100 Cr ?

Creditors Dr ? Cr 900

9. Tamar Lambert is a sole trader. The following data was obtained from his
books for the month of October 2003 :

Cash sales 2,560

Cheques from Debtors 1,520
Return inwards 75
Discounts allowed 30
Debtors at Oct 1 1,120
Debtors at Oct 31 1,485
Purchases on Credit 3,210
Cash Purchases 200
Stock at Oct 1 1,180
Stock at Oct 31 1,290

Required :

a. Prepare the Debtors Control Account for the month, clearly showing the
amount for credit sales for the month

b. Calculate the Gross profit for the month

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10. Sam Sharpe Bargain Centre has produced the following data for the year 1998 :

Cash sales 344,890

Credit Sales 268,187
Cash purchases 14,440
Credit purchases 496,600
Receipts from customers 600,570
Discount allowed 5,520
Refund to cash customers 3,510
Set off between SL and PL 70
Bad Debts 780
Increase PFBD 90
Credit notes to credit customers 4,140
Credit notes from credit suppliers 1,480

Balances obtained at the end of the year 1987 were debtors 26,555 and creditors
43,450

Required : prepare the SLCA and the PLCA for the year 1998

11 The Kingston Merchandise Company has supplied the following data for 2002

Jan 1 Purchases Ledger balance 11,874

Sales Ledger balance 19,744

Totals for the year

Purchases Journal 154,562
Sales Journal 199,662
Return Outwards Journal 2,648
Return Inwards Journal 4,556
Cheques to Suppliers 146,100
Cash paid to suppliers 78
Cheques received from customers 185,960
Discount allowed 5,830
Discount received 2,134
Bad Debts written off 396
Set off between SL and PL 1,036

December 31 Purchases Ledger balance 14,440

Sales Ledger balance 21,628

Required : Prepare the SLCA and the PLCA for the year

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12. (a) from the following data, prepare the sales ledger control account :

Credit sales 12,000

Return Inwards 125
Cash received from customers 11,520
Discounts allowed 250
Bad debts written off 500
Interest charged on overdue account 20
Balance at Jan 1 5,141

(b) The balance obtained above does not agree with the Debtors schedule at the
end of January, which amounted to 4,074. An audit revealed the following

i. The sales journal was overcastted by 150

ii Discounts allowed for 10 was not included in the cashbook

iii. A balance of 88 was not included in the sales ledger schedule

iv. Bad debts of 122 was not included in the General Ledger

v. The credit side of one sales ledger account was over by 50

vi. Discounts allowed for 7 was not posted to the customers account

vii. An entry for 93 in the sales journal was erroneously posted as 39 in the
sales ledger

viii An account for 224 in the Purchase Ledger was set off in the sales
ledger, but was not included in the control account

Required

a. Show the adjustments to the sales ledger schedule

b. Show the changes to the SLCA

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13. The following extracts were taken from the books of Sherone Simpson for
the month of Apr:

a) Purchases Daybook b) Return Outwards Daybook

Apr 3 W. Allen 480 Apr 14 W. Allen 50

7 J. Morris 270 29 T. Sage 80
17 T. Sage 410
24 F. Wilding 650

c) Cash book

Date Details Dis Rec Bank

Apr 9 T Sage 30 690
18 F Wilding 5 195
24 J. Morris 31 389
27 W. Allen 18 322

d) General Journal

DATE DETAILS DR CR
Apr 30 Creditor W. Allen 180
Debtor W. Allen 180

e.) Creditors Schedule at Apr 1

W. Allen 360
J. Morris 140
T. Sage 720
F. Wilding 310

Required :

i. State the names of the source documents that would be used to make entries to
the purchases daybook, and to the return outwards daybook

ii. Show the purchased ledger accounts in the books of S. Simpson including a
creditors schedule

iii. Simpson’s PLCA for the month to verify the total of the creditors’ schedule

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14. (a) from the following data, prepare the purchases ledger control account :

Credit purchases 17,500

Return outwards 310
Cash paid to supplier 12,250
Discounts received 110
Refund from supplier 120
Set off against SL 75
Balance at Jan 1 6,500

(c) The balance obtained above does not agree with the Creditors’ schedule at the end
of May, which amounted to 12,500. An audit revealed the following

i. The purchases journal was undercast by 350

ii Discounts received for 10 was recorded in the cashbook but was not
posted to the purchases ledger

iii. A balance of 2500 was not included in the purchases ledger schedule

iv. The credit side of one purchases ledger account was over by 4,325

v. Discounts of 500 received from a supplier was not included in the

control account

vi. An entry for 230 in the purchases return journal was erroneously
picked up as 320 in the control account

viii An account for 650 in the Purchase Ledger was set off in the sales
ledger, but was not included in the control account

Required

a. Show the adjustments to the purchases ledger schedule

b. Show the changes to the PLCA

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