Financial Accounting 2

Control Accounts

Learning Outcomes

To define control accounts

The purpose of control accounts.
The main types of control accounts.

BM020-3-1 FA2

Control Accounts

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Uses of Control Accounts

A control account is so called because it controls a
section of the ledger.
For example, a sales ledger control account controls
the sales ledger; a purchase ledger controls the
purchase ledger.
If there is a difference on the trial balance, the control
accounts will show whether or not any of the
difference is in the sales or purchase ledgers.
Control accounts are kept in the general ledger.
BM020-3-1 FA2

Control Accounts

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Purpose of Control accounts

To act as independent checks on the arithmetical
accuracy of the balances in the sales and purchase
ledgers.
An added advantage of keeping control accounts in
that they can act as mini trial balances, since they
are summary accounts.
To identify ledgers in which errors have been made
when there is a difference on a trial balance.

BM020-3-1 FA2

Control Accounts

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Purpose of Control accounts

(cont)
To act as an independent internal check
on the work of the sales & purchase
ledger clerks, to detect errors or fraud.
Duties should be divided where the person
keeping the sales or purchase ledgers will
not have access to the control account in
the general ledger.

BM020-3-1 FA2

Control Accounts

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Form of Sales Control Account

Sales Day Book/Sales Journal
Sales ledger
(customers account)

General ledgers
Sales ledger control
account
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Control Accounts

Sales account

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Sales Ledger Control Account

(Debtors Control Account)

Sales ledger

Baba

Ali

Jan 8 Sales 1600

Jan 15 Sales 2500

Elan

Chew
Jan 19 Sales 1000

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Jan 26 Sales 3500

Control Accounts

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General ledger
Sales Account
Jan 31 Credit sales for
month

BM020-3-1 FA2

Control Accounts

8,600

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General ledger
Sales Ledger Control Account
20X9
Jan 1
Jan 31

20X9
Balance b/d
Sales

Feb 1 Balance b/d

BM020-3-1 FA2

1,600
8,600
10,200

Jan 31 Balance c/d 10,200

10,200

10,200

Control Accounts

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Sales Ledger Control

Jan 1
Balance b/d
xxxx
Jan 31 Sales day book
xxxxx
(total of sales invoiced in the
period

Jan 31
Returns inwards Day Book
(total of all goods returned from
debtors in the period)
xxx
Jan 31
Cash book
xxx
(total of all cash received from
debtors in the period)
Jan 31
Cash book
xxx
(total of all cheques received from
debtors in the period)
Jan 31
Balance c/d
xxx
xxxxx

xxxxx

BM020-3-1 FA2

Control Accounts

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Example 1 of Sales Ledger Control Account

Debit balances on 1 January 20X9

Total credit sales for the month
Cheques received from customers in the month
Cash received from customers in the month
Returns inwards from customers during the month
Debit balances on 31 January as extracted
from the sales ledger

1894
10290
7284
1236
296
3368

Sales ledger control

20X9
Jan 1 Balances b/d
Jan 31 Sales

1894
10290

20X9
Jan 31
Jan 31
Jan 31
Jan 31

Bank
Cash
Return Inwards
Balances c/d

7284
1236
296
3368

12184
12184

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Control Accounts

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Information for sales ledger

control account

Exhibit 2.1 Source of information for sales ledger control account

BM020-3-1 FA2

Control Accounts

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Form of Purchase Control Account

Purchase Day Book/Purchase Journal
Purchase ledger
(creditors account)

General ledgers

Purchases Ledger control

account

BM020-3-1 FA2

Purchases account

Control Accounts

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Purchase Ledger control account

The total creditors account is also
referred to as the Purchase ledger
control account
The credit balance in this account in the
general ledger must always be equal to
the total of the credit balances of the
individual creditors accounts in the
purchases ledger at a particular point in
time.
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Control Accounts

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Purchase Ledger Control Account

Purchase ledger

Bob

Sow

Jan 3 Purchases 1,500

Rama

Tom

Jan 18 Purchases 10,000

BM020-3-1 FA2

Jan 10 Purchases 4,500

Control Accounts

Jan 21 Purchases 4,000

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General ledger
Purchase Ledger control account
20X9
Jan 31

Balance c/d 23,000

20X9
Jan 1 Balance b/d
Jan 31 Purchases

3,000
20,000

23,000
23,000
Purchases account
Jan 31 Sundry creditors

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20,000

Control Accounts

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Information for purchases ledger

control account

Exhibit 2.2 Source of information for purchases ledger control account

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Control Accounts

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Question and Answer Session

Q&A
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Control Accounts

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What we will cover next

Errors and Adjustment

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Control Accounts

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