Control Accounts

Chapter 16
• understand the purposes of purchases ledger
and sales ledger control accounts

identify the books of prime entry as sources of
information for the control account entries
• prepare purchases ledger and sales ledger
control accounts to include credit purchases and
sales, receipts and payments, cash discounts,
returns, irrecoverable debts, dishonoured
cheques, interest on overdue accounts, contra
entries, refunds, opening and closing balances
(debit and credit within each account).
Introduction

Control Total
Accounts
= Accounts

Sales Ledger
(Debtors)
Control
Accounts Purchases
Ledger
(Creditors)
Advantages of Control Accounts
• Assist in locating errors when the trial balance fails
to balance.
• Proof of the arithmetical accuracy of the ledgers
they control.
• The balances on these accounts are regarded as
being equal to the total debtors and the total
creditors.
• Draft final accounts can be prepared quickly
• Help to reduce fraud on the control accounts
• Provide a summary of the transactions affecting the
debtors and creditors
 Sales Ledger Control Account Format

Nominal Ledger
Sales (Debtors) Ledger Control Account

Date Details Fo $ Date Details Fo $

Balance b/d xx Sales Returns SRJ xx
Sales SJ xx Cash CB xx
Bank (dishounoured Bank CB xx
cheque) Discount allowed CB xx
Bank/ Cash CB xx Bad Debts GJ xx
(refunds)
Interest charged* CB xx
GJ xx Balance c/d xx
Balance*) on overdue accounts xx xx
b/d xx
SJ: Sales Journal, CB: Cash Book, GJ: General Journal
SRJ: Sales Returns Journal
Example
Shweta maintains a full set of accounting records and prepares control accounts at
the end of each month.
She provides the following information.
2008 March 1 Sales ledger control account balance 1,200 (dr)
March 31 Totals for the month:
Sales Journal 4,890
Sales Returns Journal 250
Cheques received from debtors 3,892
Discount allowed to debtors 8
Cash received from debtors 120
Cash refunds to debtors 19
Cheque received (included in the above figure)
later dishounoured 80
Bad Debts written off 94
Prepare Shweta’s sales ledger control account for the month of March 2008.
 Answer
Shweta
Nominal Ledger
Sales Ledger Control Account

Date Details Fo $ Date Details Fo $

2008 2008
Mar 1 Balance b/d 1,200 Mar 31 Sales Returns 250
Sales 4,890 Cash 120
Bank (dishounoured Bank 3,892
cheque) 80 Discount allowed 8
Cash (refunds) 19 Bad Debts 94
Balance c/d 1,825
6,189 6,189

*)
Aplon1overdue
Balanceaccounts b/d 1,825
 Purchases Ledger Control Account Format

Nominal Ledger
Purchases (Creditors) Ledger Control Account

Date Details Fo $ Date Details Fo $

Purchases Returns PRJ xx Balance b/d xx
Cash CB xx Purchases PJ xx
Bank CB xx Bank/ Cash
Discount Received CB xx (refunds) CB xx
Balance c/d xx Interest charged* GJ xx
xx xx
Balance b/d xx

*) on overdue accounts
Example
Shweta maintains a full set of accounting records and prepares control accounts
at the end of each month.
She provides the following information.
2008 March 1 Purchases ledger control account balance 1,800 (cr)
March 31 Totals for the month:
Purchases Journal 4,230
Purchases Returns Journal 180
Cheques paid to creditors 3,900
Discount received from creditors 104
Cheque refunds from creditors 100
Interest charged on overdue account 12

Prepare Shweta’s purchases ledger control account for the month of March 2008.
 Answer
Shweta
Nominal Ledger
Purchases Ledger Control Account

Date Details Fo $ Date Details Fo $

2008 2008
Mar 31 Purchases Returns 180 Mar 1 Balance b/d 1,880
Bank 3 900 31 Purchases 4,230
Discount Received 104 Bank (refunds) 100
Balance c/d 2,038 Interest charged 12
6,222 6,222
Apl 1 Balance b/d 2,038
Balances on Both Sides

• It happens due to:

➢ An overpayment by the debtor (or to creditor)
➢ The debtor (or we) returning goods after paying
the account (to creditor)
➢ The debtor (or we) paying in advance for the
goods (to creditor)
➢ Cash discount not being deducted before
payment was made
Example
Shweta maintains a full set of accounting records and prepares control
accounts at the end of each month.
She provides the following information.
2008 April 1 Sales ledger control account balance 1,825 (dr)
April 30 Totals for the month:
Sales Journal 4,910
Sales Returns Journal 210
Cheques received from debtors 4,788
Discount allowed to debtors 12
Interest charged on overdue account 10
Sales ledger credit balances 115

Prepare Shweta’s sales ledger control account for the month of March 2008.
 Answer
Shweta
Nominal Ledger
Sales Ledger Control Account

Date Details Fo $ Date Details Fo $

2008 2008
Apl 1 Balance b/d 1,825 Apl 30 Sales Returns 210
30 Sales 4,910 Bank 4,788
Interest charged 10 Discount allowed 12
Balance c/d 115 Balance c/d 1,850
6,860 6,860

May 1 Balance b/d 1,850 May 1 Balance b/d 115

Contra Entries

• It happens because a business sell goods to

another business and also buys different goods
from that business.
Example
Shweta provides the following information.
2008 May 15 Sold goods, $ 190, on credit to Mansingh Road Stores
22 Bought goods, $ 320, on credit form Mansingh Road
Stores
30 The balances of the two accounts for Mansingh Road
Stores were set-off and Shweta sent a cheque for the
remaining balance

Record he above transactions in the account for Mansingh Road Strores in

the sales ledger and the account for Mansigh Road Stores in the purchases
ledger.
 Answer
Shweta
Sales Ledger
Mansingh Road Stores account

Date Details Fo $ Date Details Fo $

2008 2008
May 15 Sales 190 May 30 Purchases
Ledger 190
190 190

Purchases Ledger
Mansingh Road Stores account
Date Details Fo $ Date Details Fo $
2008 2008
May 30 Sales Ledger 190 May 30 Purchases 320
Bank 130
320 320
The End