Control Accounts

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Functions of control accounts

The control accounts help us to locate

errors.
The control accounts provide a summary.
The total balances of the debtors and
creditors can be derived quickly and easily.
The control accounts are prepared by a
different person than the one who prepares
the sales and purchases ledgers, which also
make fraud more difficult.
2
Form of control accounts

It is usual to final control accounts in

the same form as an account, with the
totals of the debit entries in the
ledger on the left-hand side of the
control account, and the totals of the
various credit entries in the ledger on
the right hand side of the control
account.
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Sales ledger control account

Sales ledger control account = Total

debtors
account

4
 Sales Ledger Control Account
1996 $ 1996 $
Dec 1 Balance b/f a Dec 1 Balance b/f i
31 Sales b 31 Returns Inwards j
31 Cash / Bank c 31 Cash / Bank k
31 Bank d 31 Bills receivable l
31 Bills receivable e 31 Set-off m
31 Interest received f 31 Discount allowed n
31 Bad debts recovered g 31 Bad debts o
31 Balance c/f h 31 Balance c/f p
x x

5
 Items Sources
a. Total of opening debit balance of Sales ledger
debtors
b. Total credit sales Sales journal
c.Cash refund to a customer who Cash book
has overpaid his account
d. Dishonoured cheques Cash book
e. Dishonoured bills Journal
f. Interest charged by us on Journal
overdue debts
g. Bad debts recovered Journal
h. Total of closing credit balances Sales ledger
of debtors
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i. Total of opening credit balances Sales ledger
of debtors
j. Returns inwards Returns inwards
journal
k. Cash or cheques received from Cash book
debtors
l. Bills receivable from debtors Journal
m. Balances in sales ledger set off Journal
against credit balances in purchases
ledger
n. Discounts allowed Cash book
o. Bad debts written off (not Journal
provision for bad debts)
p. Total of closing debit balances of Sales ledger
debtors 7
Purchases ledger control account

Purchases ledger control account =

Total creditors account

8
 Purchases Ledger Control Account
1996 $ 1996 $

Dec 1 Balance b/f a Dec 1 Balance b/f h

31 Returns Outward
31 Cash / Bank
31 Bills Payable
31 Set-off
31 Discounts Received
31 Balance c/f
b 31 Purchases i
c 31 Cash / Bank j
d 31 Bank k
e 31 Bills Payable l
f 31 Interest Expenses m
h 31 Balance c/f n
x x

9
 Items Sources
a. Total of opening debit Purchases ledger
balances of creditors
b. Returns outwards Returns outwards
journal
c. Cash or cheques paid to Cash book
creditors
d. Bills payable to creditors Journal
e. Balances in purchases ledger Journal
set off against debit balances in
sales ledger
f. Discounts received Cash book
g. Total of closing credit Purchases ledger
balances of creditors
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h. Total of opening credit balances Purchases
of creditors ledger
i. Total credit purchase Purchases
journal
j. Cash refund from suppliers who Cash book
have overcharged us
k. Dishonoured cheques returned Cash book
from creditors
l. Dishonoured bills returned from Journal
creditors
m. Interest payable on overdue Journal
debts
n. Total of closing debit balances Purchases
of creditors ledger 11
Types of Minority balances

Temporary debit balances in total

creditors account
Temporary credit balances in total
debtors account

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Reasons for the occurrence of
minority balances
Returns after settlement of the
accounts
Claims for shortages of goods or for
invoices overcharged after
settlement the accounts

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Minority balances on the balance
sheet
Balance sheet
Debtors (debit balance of sales ledger + debit
balance of
Less: provision
purchases X(debit balance of
for bad debt
ledger)
sales ledger x percentage) X

X
Creditors (credit balances of purchases
ledger + credit balances of sales
ledger) X
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Contra item

If the same firm is both a supplier

(creditor) and a customer (debtor),
inter-indebtedness is set-off
Contra items(set-off) are shown on
the credit side of the sales ledger
control account and will appear on the
debit side of the purchases ledger
control account
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The following information was extracted from the
books of Lewell Ltd. On 1 March 1996:

Purchases ledger control account 28,500

Sales ledger control account 67,300

During the month:

Cash sales 12,000

Credit sales 20,000
Cash purchases 8,800
Credit purchases 14,000 16
Discounts received from suppliers 5,400
Discounts allowed to customers 4,200
Returns Inwards 900
Cash received from customers 25,000
Cash payment to suppliers 30,000
Returns Outwards 700
Bad debts written off 100
Bills receivable from customers 11,000
Dishonoured cheques returned to customers 500
Balances in sales ledger set off against credit
Balances in purchases ledger 2,600
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Example 1

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 Total creditors account
31/3 discount received 5400 31/3 bal b/f 28500
Returns outwards 700 31/3 purchases 14000
Set-off 2600
Cash 30000
Bal c/f 3800
42500 42500

Total debtor accounts

31/3 Bal b/f 67300 31/3 discount allowed 4200
Sales 20000 Returns inwards 900
Bank 500 Bad debts 100
Cash 25000
Bill receivable 11000
Set-off 2600
Bal c/f 44000
87800 87800

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 Comparing Sectional
Balancing and Self-balancing
system

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Self-Balancing system

In larger organizations, control

accounts are part of the double
entry system,
The sales ledger and purchases
ledger (debtors and creditor
accounts) are kept only on a
memorandum purposes
.

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Sectional Balancing System

In small firms, debtors and creditors

accounts are regarded part of the
double-entry system
The control accounts should be kept
only for memorandum purposes

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 Sectional Balancing System
Original
documents

Sales/Purchases
Journals Sales Ledger control a/c
Purchases ledger control a/c

General ledger Sales/purchases ledgers

Sales and purchases a/c Debtors/Creditors

Trial Balance

For memorandum
Double-entry system purpose

Note: posting
extracting 23
 Self-Balancing System
Original
documents

Sales/Purchases
Journals Sales/purchases ledgers
Debtors/Creditors

General ledger Sales Ledger control a/c

Sales and purchases a/c Purchases ledger control a/c

Trial Balance

For memorandum
Double-entry system purpose

Note: posting
extracting24
Transaction recording

25
Sellers book

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 Transactions Self-balancing System Sectional
Balancing
System
A Credit sales Dr Sales Ledger Control Dr Debtors
Cr Sales Cr Sales
B Receipts from Dr Cash / Bank Dr Cash/Bank
debtors Cr Sales Ledger Control Cr Debtors
C Return inwards Dr Return Inwards Dr Return
Cr Sales Ledger Control inwards
Cr Debtors
D Discount Dr Discount Allowed Dr Discount
allowed Cr Sales Ledger Control Allowed
Cr Debtors
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 Transactions Self-balancing System Sectional
Balancing
System
E Bad debts Dr Bad debts Dr Bad debts
written off Cr Sales Ledger Control Cr Debtors
F Bad debt Dr Cash/Bank
recovered Dr Sales Ledger Control Cr Debtors
Cr Bad debts recovered
Dr Cash / Bank
Cr Sales Ledger Control

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Buyers book

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 Transactions Self-balancing System Sectional
Balancing
System
A Credit Dr Purchases Dr Purchases
purchases Cr Purchases Ledger Cr Creditor
Control
B Payment to Dr Purchases Ledger Dr Creditors
creditors Control Cr Cash/Bank
Cr Cash/ Bank
C Return Dr Purchases Ledger Dr Creditors
outwards Control Cr Return
Cr Return Outwards Outwards
D Discount Dr Purchases Ledger Dr Discount
received Control Allowed
Cr Discount Received Cr Debtors 30
Correction of Errors

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 Errors Self-balancing System Sectional
Balancing
System
a. Credit sales Dr Sales ledger Control Dr Debtors
invoice omitted Cr Sales Cr Sales
(Increase the debtors ledger (Debit the sales
listing.) ledger control
account.)
b. Sales omitted Dr Sales Ledger Control Dr Debtors
in journal Cr Sales Cr Sales
(Increase the debtors ledger (Debit the sales
listing.) ledger control
account.)

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c. Sales of $120 Dr sales Ledger Dr Debtors
incorrectly Control Cr Sales
entered in sales Cr Sales (Debit the sales
journal as $100 (increase the debtors ledger control
ledger listing.) account.)
d. Sales journal Dr Sales ledger Dr Suspense
undercast. Control Cr Sales
Cr Sales (Debit the sales
(The debtors ledger ledger control
listing remains constant, account.)
because only the total
figure is wrong. This
does not affect the
debtors accounts, the
figures for which are
e. Sales of Dr Suspense
entered individually.) Dr Suspense
$120 incorrectly Cr Sales Cr Sales
entered as $100
in sales account 33
f. Sales Dr Sales Ledger No entry
understated in sales Control (Debit the sales
ledger control Cr Suspense ledger control
account account.)
g. Sales of $120 No entry Dr Debtors
incorrectly debited (Increase the debtors Cr Suspense
to debtor account ledger listing.)
as $100.
h. Balance of sales Dr Suspense Dr Suspense
has been incorrectly
put to the wrong
side of the trial
balance.
i. Balance of No entry Cr Suspense
debtors has been
incorrectly put to
the wrong side of
the trial balance.
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j. Balance of sales Cr. Suspense No entry
ledger control account
has been incorrectly
put to the wrong side
of the trial balance.

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Example 2

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 John Chan
The Journal
Dr Cr
1996 $ $
Dec 31 Sales Ledger Control 530
Sales 530
31 Suspense 1,050
Discount received 1,050
31 Returns Outwards 3,200
Purchase Ledger Control 3,200
31 Purchases Ledger Control 120
Sales Ledger Control 120
31 Bank 1,000
Sales Ledger Control 1,000
31 Bank 2,250
Suspense 2,250

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 Suspense Account
$ $

Balance b/f 1,200 Bank 2,250

Discounts received 1,050 _____
2,250 2,250

Sales Ledger Control Account

$ $

Balance b/f 30,000 Bank 1,000

Sales 530 Purchase Ledger Control-set off 120
Balance c/d 2,950 Balance c/d 32,360
33,480 33,480
Balance b/d 32,360 Balance b/d 2,950

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 Statement showing the Revised Balance of Sales Ledger Listing
$

Original Balance 32,000

Add Invoice understated 360
Revised Balance 32,360

Purchases Ledger Control Account

$ $

Sales Ledger Control-set-off 120 Balance b/d 12,000

Balance c/d 16,500 Returns Outwards 3,200
______ Balance c/d 1,420
16,620 16,620
Balance c/d Balance b/d 16,500

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Statement showing the Revised Balance of Purchases Ledger Listing
$

Original Balance 17,135

Less Balance overstated 635
Revised Balance 16,500

Statement showing the Revised Net Profit for the year ended 31 Dec 1996
$ $
Net Profit as per accounts 11,200
Add Sales undercast 530
Discounts Received undercast 1,050 1,580
12,780
Less Returns Outwards overcast 3,200
Revised Net Profit 9,580

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 John Chan
Balance Sheet as at 31 Dec 1996
$ $ $

Fixed Asset 12,000 Capital

Less Prov. For Depn. 5,000 Balance as at 1 Jan 96 38,000
7,000 Add Net Profit 9,580
Current Assets 47,580
Stock 16,000 Current Liabilities
Debtors (32360+1420) 33,780 Creditors(16500+2950) 19,450
Bank (7000+1000+2250) 10,250 60,030 ______
67,030 67,030

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