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Control Accounts

Control Accounts

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Lorato Tunah Mokibito
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280 views22 pages

Control Accounts

Control Accounts

Uploaded by

Lorato Tunah Mokibito
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Control Accounts

A control account is so called because it


controls a section of the ledger.
By control it’s meant that the balance on the
control account should equal the total of the
balances in the section of the ledger it’s
controlling.

© Hodder Education 2008


Examples of control accounts include:
The sales ledger control account, which
summarises the individual customer accounts, i.e.
debtors’ accounts.
The purchases ledger control account,
which summarises the individual suppliers’
accounts, i.e. creditors’ accounts.

© Hodder Education 2008


Where a business operates control accounts,
the control account forms part of the double-
entry system. The individual accounts, in the
sales or purchases ledger, then act as
subsidiary or memorandum accounts.

Control accounts are kept in the general


ledger, not in the ledger they are controlling.

© Hodder Education 2008


Purposes of control
accounts
Localising errors Help locate errors, as the control
account balance should equal the total of balances from
schedule of debtors or creditors, therefore easier to locate.
Control accounts allow errors to be confined to relatively
small areas in the books and accounts.
Helps prevent fraud They provide an independent
check: control accounts are completed by a different
member of staff than the individual ledger accounts.

© Hodder Education 2008


Calculating debtors’ and creditors’ totals
The total amount owed by debtors and owed to
creditors, can be determined relatively quickly if
control accounts are used.
Provide totals for compiling final accounts
Control accounts can be used to compile the profit
and loss account and balance sheet.

© Hodder Education 2008


Example of a sales
ledger control
account
Goods sold to: Smith £500, Jones £550, Walker £400
and Thomas £50.
Smith returned goods to the value of £50 and Jones £40.
Thomas’s debt was written off as a bad debt.
Smith and Walker made payments of £294 and £196
after being allowed a cash discount.
Follow the entries in the double-entry accounts on the
next slide.

© Hodder Education 2008


Sales Journal Sales Returns Journal
Smith 500 Smith 30
Jones 550 The Journal
Jones 40
Walker 400 Bad Debts 50
70
Thomas 50 Thomas 50

1,500
Sales Ledger General Ledger Cash Book

Smith Sales
SJ 500 SRJ 30 SJ 1,500 Smith 6 294

CB 294 Walker 4 196

DA 6 10 490
Sales Returns

Jones SRJ 70

SJ 550 SRJ 40

Sales Ledger Control

Walker SJ 1,500 SRJ 70

SJ 400 CB 196 CB 490

DA 4 DA 10

Thomas Bad D 50
SJ 50 Bad Debt 50 ___ _ Bal c/d 880

1,500 1,500

© Hodder Education 2008


The balance from the individual accounts in the
sales ledger should equal the balance in the
sales ledger control account.

Schedule of debtors Balance on control


account

£ £

Smith 170 Balance b/d 880

Jones 510
Walker 200
Thomas 0
Total debtors 880

© Hodder Education 2008


The purchases ledger
control account
The purchases ledger control account is
sometimes known as the creditors’ control
account. It is used to control the purchases
ledger, which controls the accounts of the
individual suppliers who supply goods on
credit.

© Hodder Education 2008


The information needed to prepare the
purchases ledger control account comes from
the books of prime entry. For example, the total
value of purchases comes from the purchases
journal.

© Hodder Education 2008


Set-off/contra
entries
Set-off entries or contra entries arise if a
business sells goods to, and also buys goods
from the same trader.
For example
We sell P Claire goods valued at £300. We
also purchase goods valued at £400 from P
Claire. The accounts in the ledgers would
appear as follows:

© Hodder Education 2008


Set-off/contra
entries
Sales ledger
P Claire
Sales 300 Set-off purchases 300

Purchases ledger
P Claire
Set-off sales 300 Purchases 400
Bank 100
400 400

© Hodder Education 2008


Sources of information:
sales ledger control
account
Opening debtors – List of debtors’ balances drawn up
at the end of the previous period
Credit sales – Total from the sales journal
Sales returns – Total from the sales returns journal
Cheques/cash received from debtors – Cash
book
Discounts allowed – Cash book
Bad debts – Journal
Closing debtors – List of debtors’ balances drawn up
at the end of the period

© Hodder Education 2008


Sources of information:
purchases ledger control
account
Opening creditors – List of creditors’ balances drawn up at
the end of the previous period.
Credit purchases – Total from purchases journal
Purchases returns – Total from purchases returns journal
Cheques/cash paid to creditors – Cash book
Discounts received – Cash book
Closing creditors – List of creditors’ balances drawn up at
the end of the period

© Hodder Education 2008


Credit balance in
the sales ledger
The opening balance on the sales ledger
control account is normally on the debit side.
It is possible for an individual credit customer
to end up with a credit balance.

© Hodder Education 2008


Credit balance in the
sales ledger
For example
Ruth sells £700 of goods to John on 2 April.
On 18 April John sends a cheque for £700 to
Ruth.
On 24 April John returns £250 of the goods to
Ruth as they are unsuitable.

© Hodder Education 2008


John’s account

£ £
Sales 700 Bank 700
Balance c/d 250 Sales returns 250
950 950
Balance b/d 250
We can see therefore that John now has a
credit balance on his account. When we draw
up the control account this is shown as a
separate balance b/d.

© Hodder Education 2008


Pro-forma layout
Dr Sales ledger control account Cr
£ £
Balance b/d (large amount) Balance b/d (small amount)
Credit sales Bank
Bank (dishonoured cheques) Cash
Interest charged to debtors Discounts allowed
Balance c/d (small amount) Sales returns
Bad debts
Contra/set-off
Balance c/d (large amount)

© Hodder Education 2008


Pro-forma layout
Dr Purchases ledger control account Cr
£ £
Balance b/d (small amount) Balance b/d (large amount)
Bank Credit purchases
Cash Bank (returned cheques)
Discounts received Interest charged to creditors
Purchases returns Balance c/d (small amount)
Contra/set-off
Balance c/d (large amount)

© Hodder Education 2008


Tips
Don’t forget contra entries appear in both the
sales ledger control account and the
purchases ledger control account.

© Hodder Education 2008


Tasks
Complete task sheet and Questions 13-18,
Chapter 13 of text book.

© Hodder Education 2008

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