Control Accounts

Previous Knowledge: The Sales Ledger contains all the accounts of the business’ debtors,
while the Purchases Ledger contains all accounts of their creditors
.
The trial balance checks the arithmetical accuracy of the ledger.

Control accounts are prepared to check the accuracy of the sales and purchases ledgers;
therefore they function as a form of trial balance for the sales and purchases ledgers. The
control account for the sales ledger is called Total Debtors Control Account or Sales Ledger
Control Account. Likewise the control account for the purchases ledger is called Total Creditors
Control Account or Purchases Ledgers Control Account.

NB. The term total is used in both cases as individual accounts are not checked but all
accounts in the respective ledgers are checked together.

Control accounts are not a part of the double entry system. However, students must have a firm
understanding of the double entry principle in order to appreciate and understand this topic.

Advantages of Control Accounts

❖ To locate errors

❖ Prevention of Fraud

❖ Aid in the management process as information can be obtained quickly.

Sales Ledger Control Account

Balance b/d Return Inwards

Sales Discount Allowed
Dishonoured Cheque Bank
Interest Charges Cash
Refund/ Overpayment Set Off /Contra
Bad Debt
 Purchases Ledger Control Account

Return Outwards Balance b/d

Discount Received Purchases
Cash Refund/Overpayment
Bank Interest Charges
Set Off

*Set- Off – An individual can both buy from and sell on credit to the same business. In this case
the business will have two separate accounts for the individual; one in the Sales Ledger (debtor)
and the other in the Purchases Ledger (creditor). The common amount that is owed to and by
the individual can be cancelled, quits out or set- off. Therefore, the individual’s account as a
debtor will be credited to show the reduction, while their account as a creditor will be debited
to also show the reduction.

Opening Balances

It is the norm for a debtor a/c to have a debit balance and a creditor a/c to have a credit
balance. However, it is possible for a debtor a/c to have a credit balance and a creditor a/c to
have a debit balance.

A debtor may have a credit balance for the following reasons:

1. They overpaid for their goods.

2. They paid off for goods and then returned some.

Likewise a creditor may have a debit balance for the following reasons:

1. They were overpaid for goods.

2. They received payments for goods which were later returned to them.

NB. A debtor with a credit balance does not become a creditor; likewise a creditor with a
debit balance does not become a debtor.
The total debit balances are show separately from the total credit balances in the control
accounts. Therefore both the Sales and Purchases Ledger Controls Accounts could have two
opening balances.

Sales Ledger Control Account/ Total Debtors Control Account

Balance b/d ( money owed by debtors) Balance b/d ( money owed to debtors)

Purchases Ledger Control Account / Total Creditors Control Account

Balance b/d ( money owed by creditors) Balance b/d ( money owed to creditors)

Closing Balances

Control Accounts are balanced-off like any other account. Students may come across the
following situations:

1. Students can calculate only one balance when no balance is given. Therefore each control
account will have one balance.

2. Control accounts may have two separate balances. In this case one will be given but both
sides would still not equal. Students would be expected to calculate the second balance.

NB. Students may be given one balance and when used, both sides become equal.

3. When two balances are given, students will not be able to calculate any other balance.

NB. When closing balances are given, students must show the balance c/ d before they show
the balance b/d.
Example

Sales Ledger

J. Brown A/C

$ $
Jan 1 Balance b/d GJ 10 000 Jan 8 Return Inwards RIJ 2 500
Jan 5 Sales SJ 65 000 Jan 11 Cash CB 15 000
Jan 20 Sales SJ 110 000 Jan 25 Discount Allowed CB 7 000
Jan 25 Bank CB 100 000
Jan 31 Balance c/d 60 500
185 000 185 000

Feb 1 Balance b/d 60 500

M. Miller A/C

$ $
Jan 1 Balance b/d GJ 8 000 Jan 20 Return Inwards RIJ 3 000
Jan 18 Sales SJ 150 000 Jan 25 Cash CB 40 000
Jan 31 Bank CB 85 000
Jan 31 Balance c/d 30 000
158 000 158 000
Feb 1 Balance b/d 30 000

K. King A/C

$ $
Jan 1 Balance b/d GJ 20 000 Jan 15 Bank CB 40 000
Jan 12 Sales SJ 90 000 Jan 24 Bank CB 50 000
Jan 28 Dishonoured cheque CB 50 000 Jan 31 Balance c/d 70 000
 160 000 160 000
Feb 1 Balance b/d 70 000

As was stated before Control Accounts check the arithmetical accuracy of the Sales and
Purchases Ledgers.

Information in the debtors and creditors accounts are repeated in the control accounts on the
same side. Reminder- Totals are used in Control Accounts.

Totals: $
Jan 1 Opening Balances 38 000
Credit Sales 415 000
Dishonoured Cheque 50 000
Return Inwards 5 500
Cash 55 000
Discount Allowed 7 000
Bank 275 000
Jan 31 Closing Balances 160 500

Sales Ledger Control Accounts

$ $
Jan 1 Balances b/d 38 000 Return Inwards 5 500
Sales 415 000 Cash 55 000
Dishonoured Cheque 50 000 Discount Allowed 7 000
Bank 275 000
Jan 31 Balances c/d 160 500
503 000 503 000
Feb 1 Balance b/d 160 500