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POA Section 7 Part 1

The document discusses control accounts used in accounting to check the accuracy of postings in ledgers and balance the general ledger. It explains that control accounts are needed for debtors and creditors since they are removed from the general ledger into separate sales and purchase ledgers. The types of control accounts - debtors and creditors control accounts - are described along with typical debit and credit items.

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40 views

POA Section 7 Part 1

The document discusses control accounts used in accounting to check the accuracy of postings in ledgers and balance the general ledger. It explains that control accounts are needed for debtors and creditors since they are removed from the general ledger into separate sales and purchase ledgers. The types of control accounts - debtors and creditors control accounts - are described along with typical debit and credit items.

Uploaded by

kxng ultimate
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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POA SECTION 7 Part 1: CONTROL ACCOUNTS

Introduction to Control Accounts

What do you remember about Debtors and Creditors?

DEBTORS CREDITORS
AKA Accounts Receivable AKA Accounts Payable
Debtor is someone who owes the Creditor is someone who the business
business money for goods sold to owes for goods purchased on credit
them on credit Creditors are current liabilities
Debtors are current assets Increase Credit
Increase Debit Decrease Debit
Decrease Credit Credit Purchases
Bad Debts Return Outwards
Credit Sales Payments to creditors
Return Inwards Discount Received
Receipts from Debtors
Discounts Allowed

Since Debtors and Creditors are taken out of the General Ledger and placed in separate ledgers
(Sales Ledger and Purchases Ledger respectively), the trial balance will not balance. Because of
this, there is a need to create to control accounts in the General Ledger.

Purpose of Control Accounts


➢ Check accuracy of posting in the Ledger
➢ Provide easy reference for information
➢ Restrict or Localize errors
➢ Enable general Ledger to be self-balance

There are 2 types of Control Account


1. Debtors Control Account
2. Creditors Control Account

AfiyaDteacher
POA SECTION 7 Part 1: CONTROL ACCOUNTS

Debtors Control Accounts

This is commonly known as the Sales Ledger Control Account or the Total Debtors Account or
Accounts Receivable Control Accounts. All items which appear in a debtor’s account are also
recorded in the Debtors Control Account. However these items represent the total of each type of
transaction related to debtors.

Items found on the Debit side Source of information


(Increase in Debtors) (JOURNAL)
Balance b/d Debtors Control a/c from previous period
Sales (Credit ONLY) Sales Journal
Dishonoured Cheques Cash book
Refunds General Journal/Cash Book
Interest Receivable General Journal
Other transactions that increases the amount owing

Items found on the Credit Side Source of information


(Decrease in Debtors)
Cash/Bank (receipts) Cash Book
Sales Returns (Return Inwards) Sales Returns journal
Discounts allowed General journal / Cashbook
Contra/Set off General journal
Bad Debts General Journal
Balance c/d

Name of the Business


Debtors Control Account
Date Details $ Date Details $
Balance b/d xxx Cash/Bank (receipts) xxx
Sales (Credit ONLY) xxx Sales Returns xxx
Dishonoured Cheques xxx Discounts allowed xxx
Refunds to debtors xxx Bad Debts Xxx
Any other increases xxx Contra/Set off xxx
Balance c/d xxx
XXX XXX

AfiyaDteacher
POA SECTION 7 Part 1: CONTROL ACCOUNTS

Creditors Control Account

This is commonly known as the Purchase Ledger control account or total creditors account or
Accounts Payable Control Account. All items that appear in the creditor’s ledger a/c are also
recorded in this control account.
These items however, represent the total of each type of transaction related to creditors.

Items found on the Debit side Source of information


(Decrease in Creditor)
Cash/Bank (Payments) Cashbook
Purchases Returns (Return Outwards) Purchases Returns Journal
Discount received General Journal/Cash book
Contra/Set off General Journal
Balance c/d

Items found on the Credit side Source of information


(Increase in Creditor)
Balance b/d Creditors control a/c of the previous period
Purchases (credit only) Purchases journal
Any charges by the creditor General journal
Refunds General Journal / cash book

Name of the Business


Creditors Control Account
Date Details $ Date Details $
Cash/bank (payments) xxx Balance b/d xxx
Purchases returns xxx Purchases (credit only) xxx
Discount received xxx Any charges by the creditor xxx
Contra/Set off xxx Refunds xxx
Balance c/d xxx
XXX XXX

AfiyaDteacher
POA SECTION 7 Part 1: CONTROL ACCOUNTS

Contra /Set off

• This takes place when the business’ creditor is also the business’ debtor.
• When this happens the smaller of the debt (money owed) will be eliminated or cancelled
(Set off)
• To do so we reduce the debtors account and reduce the creditors account

Example

Fifi Doubles usually purchase Channa from Josiah Dry Goods Shop.
On 20 December 2022 Fifi Doubles purchased $5000 worth in Channa on credit
On 31 December 2022 Josiah was having a New year’s party and decided to order $3000 worth
of doubles from Fifi Doubles.

In Fifi Doubles books


Credit Purchases $5000 (PL) Josiah Dry Goods Shop as a creditor
Credit Sales $3000 (SL) Josiah Dry Goods Shop as a debtor

If two persons or organisations owe each other the best thing to do is to cancel the smaller debt.
In this case the smaller debt is a credit sale of $3000 Josiah Dry Goods Shop as a debtor

HOW???
We cancel (set off) this debt by decreasing the amount ($3000) owed by the debtor (Credit
Debtor) as well as decreasing the amount ($3000) owed to the creditor (Debit Creditor)

This means the set off amount is $3000.

AfiyaDteacher

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