Control! accounts 14.1. What is a Control account? ‘A Control account contains the totals of all postings ‘made to the accounts in a particular ledger. ‘Control accounts are usually maintained for the ‘sales and purchase ledgers. The totals are the periodic totals of the books of prime entry from which ‘postings are made to the ledger. ‘The balance on a Control account should equal the total of the balances in the ledger it controls, Because the entries in the Control accounts are the totals of the books of prime eny they so ae Total accounts. Control (or Total) accounts are: Be ‘nominal (or general) ledges. Justaas a tral balance acts as a check on the ‘arithmetical accuracy of al! the ledgers, a Control 44.2 The purchase ledger and its Control account account checks the arithmetical accuracy of 2 single Jedget. A difference between a Control account balance and the total of the balances in the ledger it controls shows where a cause of a difference on 2 ‘tial balance may be found. Any difference between the Control account and the total of the balances in the ledger must be found without delay. The Sales Ledger Control account is also known as the Debrors) or Trade Receivables Control account, and the Purchase Ledger Control account is also known as the Creditors’ or Trade Payables Control account. The following examples show how postings are made from the books of prime entry to the ledgers. and the Control accounts, and how the balances on the Control accounts should equal the totals of the balances on the accounts in the ledgers. try { Porchases journal] journal Cash book ! s| SAI 3 7 | AB 100 | 8 | AB 80 1 PQ sol w | PQ 40 Fas! cH Bt woe xY 200 PI Se —— = i = 22i Cash book 80 Pur Balance c/d 2 ee mw Balance b/d PQ 8 urchases returns a pee Cash book. Py Balance c/d a 2 Balance b/d xy s Purchases returns 10 Purchases Cash book 200 Balance cfd 30" ey Balance b/d ‘Nominal edger Purchase Ledger Control account s Purchases returns journal 18 Purchases journal Cash book 320, Balance cfd = _S2°= *2042 +30 zw “~~ Balance b/d ‘Balancing figure sl 2+ ge Enter items in the Control account as follows: Debit side Credit side ‘Total of purchase ledger debit ‘Balance on the pecans boot tales ay ane need forwaed from the previous from the peevious period period ‘Total of goods returned to Total of purchases on credit supplies (fom purchases returns (From purchases joural) 2 “Total of cash paid to supplies. Refunds from suppliers (from (from cash book) ‘ash book) Cash discounts received (from Interest charged by suppliers discount column in cash book) _on overdue invoices (from ‘3 purchases juraal) ‘Purchase ledger balances set ‘Total of debit balances (if any) against balance insles ledger tend of peciod in purchase (Grom journal) ledger, carted forward Baie ca forward agsee | wih ot fered alice ia purchases ledger) s Note. Debit balances in the purchase ledger must an never be netted against (deducted from) the credit balances. ol 2 # Warning. Oi ei pice tn taeda GO ‘Ledger Control account, Do notenter cash purchasesinit, Books of prime entry I ! $1 (Bali 300 | | Carla 520 | | Paula 140 | | =) $ 1S eeBaoce b/d 0 14.5 How to prepare as Control account Enter items in the Control ‘Debirside Balance brought forward peevious pend Coed sales for period (otal sales journal) Refunds to credit customers (for cash brook) Dishonoured cheques (from ‘cash boot) erent changed to costes cm oveaoe accounts let joual of cash book) account as follows: ‘Credit side ‘otal of sales ledger ert ‘balances (ifany) brought forward from previous Sales cerurs forthe {oral of sales reruns Cash received from ‘eustomers (rom eash book) (Cash discounts (discounts columns in sh ‘Bad debts previously writen off, Soles ledger balances et against now recovered (journal) ‘Balances in purchase ledger ‘Foua of credit balances GF any) Balance carted forward ro fnsalcsledgee at end of period agree with roal of debie catted forward Dalances in sales ledger Note. Do not ‘net’ credit balances in the sales ledger against the debit balances. + Warning. Do not enter the following in 2 Sales Ledger: Control account © cath sales {© provisions for doubtful debrs. counts and the try mo! Control account duplicate the information contained in the purchase and sales (personal) edgers. Control accounts and personal ledgers cannot both be part of the double-entry model. It is usual to treat the Control accounts as part of the double entry and to regard the personal ledgers as memorandum records containing the details which support the Control accounts. Example ‘The following information has been extracted from the books of Useful Controls Led. s ‘At June 2011 Purchase ledger balances brought forvard debit 900 weredit 1640 Sale ledger balances brought forward = debie 30580 Teredie 620 ‘Month w 30 June 2011 ‘urchastjoutna tot 00 Purchases rrurns journal wot 3150 Sales jouena wal 96400 Sales etura journal total “1980 Cash book: Payments to suppliers 39540 ‘Chesques received from customers (Gee note below) 103 900 Discounts received 2670 Discounts allowed 4520 Dishonoured cheques 3300 Journal: Bad debe writen off 120 Sales ledge balances St against edger balances 4300 ‘AxJune 30 Debt balances on purchase ledger accounts 9 Credit balances om sales ledger accounts 35 ‘Note. The cash received from customers inches $800 cating ‘nbad debe previously writen offRequired Prepare a Purchase Ledger Control account and a Sales Ledger Control account for Useful Controls, for the month of June 2011, Answer Purchase Ledger Control account | 2m S200 s Jun LBalance b/d 900 Jun 1 Balance b/d 16340 30 Purchases returns 30 Parchases journal 65 000 journal 3150 30.Balance c/a 600 Cashbook 59840 Discounts received 2.670 Sides ledger-contra 4 800 Balance c/d ‘Balancing figure) 10 880 a Isp Bains b/d 2B uly Doce ra Se ee ad 2011 $201 s Jon 1 Balance b/d 30580 Jon 1 Balance b/d 620 30 Salesjournal 96400 "30 Sales rerurns Bad debe jounal 1980 recovered 800 Cashbook 103900, ‘Bank — Discounts allowed 4520 honoured Bed debe wien cheques: 3300 off 1220 Balance c/d 325. Purchase ledges — : ‘conms 490 ‘WBalance c/d (alancingfigue) 14365 jel 5 sadea eal ya waa ae Exercise 1 “The following information has been obtained from the books of Byit Ltd, bse s “At March 2011 Purchase ledger balances 10.000 16 33700 _ B24 : _ B50 Discounts prion 1300 ‘Ac 31 March 2011 Debit balances in purchase ledger 156 Credit balances in purchase ledger Required Prepare the Purchase Ledger Control account for the month of March 2011. res eric Exercise 2 Information extracted from the books of Soldit Ltd is as follows: s ‘At { May 2011 Sales edger balances Bs : (ccd) 45 To the month to 31 May 2011 “Total of invoices sent ro customers 109 650 Goods reuened by customers 2220 ‘Cheques received from customers 98770 Discounes allowed a (Cheque received in respect of bad debe previously writen off (not included above) a Sales ledger balance st against balance in Bs pparchae edger ‘Ac31 May 2011 Cred balances in sles ledger 300 bie balance carsed down 2 Required Prepare the Sales Ledger Control account for the month of May 2011 14.7 Uses and limitations of Control accounts Uses @ They are an important system of control on the reliability of ledger accounts. ‘©. They wam of possible errors in the ledgers they control ifthe totals of the balances in those ledgers do not agree with the balances on the Control accounts. They may identify the ledger or ledgers in which errors have been made when there is a difference on a trial balance. @ They provide totals of trade receivables and trade payables quickly when a trial balance is being prepared, If business employs several accounting staff, the Control accounts should be maintained by somebody who is not involved in maintaining the sales or purchase ledgers. This increases the likelihood of errors being discovered and reduces the risk of individuals acting dishonestly. This division of duties is called internal check. For this. reason Control accounts are kept in the general ledger and not in the sales and purchase ledgers.Limitations # Control accounts may themselves contain errors. (See (1) and (2) in §14.8] ‘# Control accounts do not guarantee the accuracy of individual ledger accounts, which may contain compensating errors, for example items posted to ‘wrong accounts. 14.8 How to reconcile Control accounts with ledgers ‘When there is a difference between the balance on a Control account and the total of the balances in the ledger it controls, the cause or causes must be found and the necessary corrections made, This is known as reconciling the Control accounts. Iris helpful to remember the following, 1. Ifa transaction is omitted from a book of prime. centry, it will be omitted from the personal account in the sales or purchase ledger and from the Control account. Both records will be wrong, and the Control account will not reveal the error. 2. If a transaction is entered incorrectly in a book of ptime entry, the error will be repeated in the personal account in the sales or purchase ledger ‘and in the Control account. Both records will be ‘wrong and the Control account will not reveal the error. 3. If an item is copied incorrectly from a book of prime entry to a personal account in the sales or ledger, the Control account will nat be affected, and it will reveal that an error has been made. 4, If a total in a book of prime entry is incorrect, the Control account will be incorrect but the sales or purchase ledgers will not be affected. The Control account will reveal that an error has been made. Example “The following information has been extracted from Duprey’s books at 31 December 2010, EE ‘The following errors have been discovered. 1. A sales invoice for $100 has been omitted from the sales journal. 2. Acredit balance of $35 in the sales ledger has been extracted as a debit balance in the ist of sales ledger balances. 3, The sales journal total for December has been overstated by $1000. 4, A balance of $250 on a customer's account in the sales ledger has been set against the amount owing to him in the purchase ledger but 10 entries have been made for this in the Sales and Purchase Ledger Control accounts. 5, A supplier’ invoice for $940 has been entered in the purchases journal as $490. ~ 6..An item of $340 in the purchases returns journal has been credited in the supplier's account in the purchase ledger. There was a credit balance of $800 on the supplier's account at 31 December. 7. Discounts received in December amounting t© $360 have been credited to the Purchase Ledger Control account. Further information ‘Duprey's draft accounts for the year ended 31 December 2010 show a net profit of $36 000. He makes a provision for doubtful debts of 6%. Required @) Calculate the following at 31 December 2010: () the revised sales ledger balances (i) the revised purchase ledger balances (b) Prepare the amended Sales Ledger and Purchase Ledger Control accounts. (© Prepare a statement of the revised net profit for the year ended 31 December 2010. (@ Prepare an extract from the Statement of Financial Position at 31 December 2010 to show the trade receivables and trade payables. Answer (@) @ Revised sales ledger balances,i) Revised purchase ledger balances, Debit Cred i Sonne Before adjustment = nor in purchases journal $(940 — 490) Adjustment of rerun credited » ae to supplier S(340 2 Revised balances (eam fc placed on the = ment fran tem placed onthe wrong ie of account must be twice the amount of the item, ed b) * Ana Amended Sales Ledger Control account 2010 S210 5 Dec 31 Balance brought Dec 31 Correction of sales forward 18710 journal ral 1000 Invoice omited ‘Conura to purchase fom $) 100 ledger & 20 Baliree cfd _148 Balance e/d 17705 15955 18955 aot 201 se jan 1 Balance b/d 17705 Jan 1 Balance b/d 145 Amended Purchase Ledger Control account 2m0 S$. 2010 s Dec 31Conera to sales ‘Dec 31Balance brought ledger ¢ 250 forward 6330 Correction of Error in purchase acounts journal 450 S(360 * 2) 20 Balance e/d 8 Balance c/d 5890 so 2011 ae Jan 1Baance b/d. 80. Jan 1 Balance b/d 5690 (©) Revised net profit for the year ended 31 December 2010. Decrease Increase ees [Net profit per draft accounts 36.000 Sales invoice omit from sales journal 100 (Overcast of sles journal 1000 archate invoice understated 450 Increase in for doubsfal debss ok 87705-17640) AT gs Revised net profit {@ Statement of Financial Position extracts at 31 December 2010. gots ‘Trade receivables 4 ‘Sales ledger 3770 ‘Deduct provision for doubsful debts LOGE Purchase it balances) 16223 fara ae at ice) —2 Purchase ledges 5890 Sales ledge (edit balances) 15 6005 » Notes @ Trade receivables should never be deducted from trade payables, or trade payables from trade receivables in a Statement of Financial Position. # Do not provide for doubtful debts on debit balances in the purchase ledger Exercise 3 ‘The following information has been extracted from the books of Rorte Ltd at 31 December 2010. $ 64 Geb) ©7217 (credit) “Total of sales idge balances 23425 (bit) med 590 (eet) ‘Purchase Ledger Control account 7.847 (eredi) Sales Ledger Control account a 2290 (debit) Draft accounts show a net profit of $31 000 for the year ended 31 December 2010, The following, errors have been discovered. 1. An invoice for $100 has been entered twice in the purchases journal. 2. A total of $84 has been omitted from both the Discounts Received account and the Purchase Ledger Control,account. 3, A debit balance of $50 has been entered in the list of purchase ledger balances as a credit balance. 4, An amount of $710 owing to Trazom, a supplier, has been offset against their account in the sales ledger, but no entry has been made in the Control accounts. 5, An invoice in the sales journal for $326 has been ‘entered in the sales ledger as $362. 6. The sales journal total for December has been understated by $800, Required (@) Prepare a statement to show the corrected purchase and sales ledger balances () Prepare corrected Purchase and Sales Ledger Control accounts. (©) Calculate the amended net profit for the year ended 31 December 2010. (@ Prepare a Statement of Financial Position extract at 31 December 2010 to show the trade receivables and trade payables.Give the Control accounts their correct tile and head the money columns with $ signs. ‘© Check carefully that the entries are on the correct sides of the accounts. ‘© Enter the dates for the entries, distinguishing betwoen the start and end of the period. ‘© Make sure that you enter the total of any credit balances in the sales ledger into the Sales Ledger Control ‘account and the total of any debit balances in the purchase ledger into the Purchase Ledger Control account, ‘© Calculate the other closing balances i necessary. ‘@ Bring down the closing balances on the first day of the next period. ‘¢ Assume that Control Accounts, when they are kept, are pat ofthe double entry and that the personal ledgers, contain memorandum accounts, unless the question indicates otherwise. It Control accounts are not ‘maintained, the double entry is completed in the personal ledger accounts. ‘¢ Enter bad debts recovered on the debt side of the Sales Ledger Control account as well as showing the cash received for them on the credit side. ‘© Enter ‘contra items (balances in the sales ledger set off against balances in the purchase ledger) in both Control ‘accounts. The entries will always be credited in the Sales Ledger Control account and debited in the Purchase Ledger Gontrol account. ‘The debit balance: ‘Sales Ledger Control ‘Which figure for trade payables should be shown in the Statement of Financial Position? ‘A. $75 000 1B. $77 000 ‘c. $80.000 1D. $85.000 aa ein 81 October not carried down in the Purchase ‘Account at 30 September 2010 is $104 000. The Nee Cae esscint a0 aes head orale ‘A refund to a cash customer debited in 3 3 Purchase Ledger Control account 150 ‘Whats the total ofthe credit balances inthe | oO purchase ledger? 1A. $26 450 $26 750, ae ¢. $27 050 1D. $28 950 | 600 3. A Purchase Ledger Control account has been reconciled with the purchase ledger balances as | shown. ledger? ‘A. $100 990 al ¢.$102070 Balance per Control account 76.000 Total of purchases joumal for one month 2. The credit balance on a Purchase Ledger Control ae cats ceeded nn account at 31 October is $28 000. The following eet cairintato payatiearelponed 6 errors have been found. purchase ledger 5.000 aie ‘Total of balances in purchase ledger 85 0004. The following information was taken from Peter's books. 2011 $ March 1. Sales Ledger Control account balance 55 650 Dr Purchase Ledger Control account balance 34.020 Gr 31. Sales for March 47700 Purchases for March 21840 Cheques received from credit customers 36 900 Payments to trade payables 24300 Customers’ cheques, returned unpaid 1920 Bad debts written off 2250 | Discounts received 600 Discounts allowed 930 Returns inwards 580 | Returns outwards 390 | Credit balance in purchase | ledger transferred from ‘sales ledger 810 Required Prepare the Sales Ledger Control account and the Purchase Ledger Control account for the month of March 2011 | 2. The following information was extracted from the ‘books of Colombo for the year ended 30 April 2011 fece s | Purchase ledger balances (2010 64 680 om 1.236 210 | Gheques paldto wadepayables,.- 1118970 13.410 47100 7815 Required {@) Prepare the Purchase Ledger Control account for the year ended 30 April 2011. ‘The total of the balances extracted from ‘Colombo's purchase ledger amounts to 3. _/ 2 Receipt of $900 ftom P, Ford a customer, has Zo rennet Rees closing balance in the Controt account. The following errors were then discovered. 1. The total of discount received had been overstated by $1500. \*. A purchase invoice for $3060 had been ‘completely omitted from the books. 7 Acted balance inthe purchase ledger account had been understated by $150. 4. credit balance of $1275 in the purchase ledger had been set off against a ‘contra’ centry in the sales ledger, but no entry had been made in either Control account. 5, A payment of $2175 had been debited to the creditor's account but was omitted from the bank account. 16. Acredit balance of $4815 had been ‘omitted from the list of trade payables. (0) () Extract the necessary information from the above list and draw up an amended Purchase Ledger Control account for the year ended 30 April 2011, (i) Beginning with the given total of $101 490, show the changes to be made in the purchase ledger to reconcile it with the new Control account balance ‘A131 December 2010 the balance on Sellt's Sales Ledger Control account was $17 584 (debit). It did not agree with the total of balances extracted from the sales ledger. The following errors have been found. 4. The total of the discount allowed column in the cash book has been overstated by $210. been treated as a refund from B. Ford, @ supplier. 3. Aninvoice for $1200 sent to P. Williams, a | ‘customer, has been entered in the sales joumal as $1020. 4, The total of the sales journal for December has been understated by $600. 5. Goods with a selling price of $578 were sent to Will Dither, a customer, in December, and he has been invoiced for that amount Ithas now | been discovered that the goods were sent on sale or return and the customer has not yet indicated whether he will purchase the goods.4 6. An invoice for $3160 sont to W. Yoo, a ‘customer, has been entered correctly in the ‘sales journal but has been entered in the ‘customer's account as $3610, Required (a) Propare the Sales Ledger Control account showing clearly the amendments to the original balance, (b) Calculate the total of th balances extracted from the sales ledger before the errors listed above had baen corrected. (©) Prepare the journal entries to correct the ssales ledger accounts, Narratives aro required, 4. AL31 May 2011 the debit balance on a Sales Ledger Control account was $18 640. This balance did not agree with the total of balances ‘extracted trom the sales ledger. The following ‘errors have now been found. 1, Cash received from trade receivables entered in the Control account included $400 in respect of 1a debt which had previously been written off. This fact had not been recognised in the Control account. 2. A debit balance of $325 in the sales ledger had been set off against an accous in the purchase ledger. This transfer had been ¢=bited in the Sales Ledger Control account and credited in the Purchase Ledger Control account. ‘3. Cash sales of $1760 had been recorded in the cash ‘book as cash received from trade recelvables. ‘4, Cash received from K. Ball, $244, had boon entered in the account of B. Kall in the sales ledger. Y 5. Credit balances in the sales ledger totalled $436. Required Prepare the corrected Sales Ledger Contro! account at 31 May 2011. 5. (a) Outline three reasons for keeping control accounts, {b) The following information was extracted from the books of William Noel for the year ended 90 April 2011. (©) -Crodit purchases returns Purchase Ledger Balance at 4 May 2010 Sheen gi SCrgal Croat purchases forthe year Cash purchasos Discount received on cred ‘purchases Crodit balances transferred to sal ledger accounts Draw up the Purchase Ledger Control ‘account for the year ended 30 Apri 2011. ‘Tho total of the balances in William Noot's, purchase ledger amounts to $67 680, which does not agree with the closing balance in the Control account. ‘The following errors were then discovered, 4, Discount received had been overstated by $1000. | 2. Acredit purchases invoice for $2040 had | been completely omitted from the books. 3. A purchases ledger account had been understated by $100. | 4. A credit balance of $850 in the purchases ledger had been set off against a contra entry in the sales ledger, but no entry had | ‘been made in either Control account 5. Apayment of $1450 had been debited to the creditor's account but was omitted from the bank account. 6. Acredit balance of $3210 had been ‘omited from the list of Trade payables. () Extract the necessary information trom the above list and draw up an amended Purchase Ledger Control account for the year ended 30 April 2011, | (i) Beginning with the given total of $67 660, show the changes to be made in the Purchase Ledger to reconcile itwith the ‘new Control account balance.prercise 1 Byit Led Purchase Ledger Control ait wa 3 a : ee, rasa oo oR Balance b/d 10000 mont Bunce e/d 14216 4 ae 856 Apr | Balinceb/d 156 Ape 1 Balanceb/d 14216 Exerci¥e 3 e @ Rorre Li Debit Credit ‘Before amendmen $ $ 6 7217 Deduct invoice entered twice faa Debic balance incorrecdy listed ms credit balance 2 ‘Comected balances = 0) Corrected Purchases Ledger Control me $2010 5 Dec 31 Cancellation of Dec 31 Balanceb/d 7847 ial 100 Balancec/d 14 Discounts s Received oy ‘Sales scontrs‘Trazom 710 Balance c/d 7067 a : teed ‘2011 Je 1 Balanceb/d 114 Jan 1 Balance b/d _ 7067 nine s Bo names am me a” ete ‘Sales journal fons out ‘28 : at 2 Be zon Tes 1 Balance b/d 23389 Jan 1 Balnceb/d 390 Exercise 2 ‘Soldit Led Sales Ledger Control 20 $21 3 ‘May 1 Balance b/d 27640 May 1 Balanceb/d 545 31 Sales journal!09 650 31 Sales returns 2220 Bad debt recovered 490. Balance c/d 800 Sales ledger balances ‘Debic Credit Before $e 4s 380 Correction of invoice $326 entered as $362 __(36) = Be 5 © Amended net prot $ Prof pr dae il ooceeet 31.000 [id recs in parchases 100 discounts oad 4 Poche ledger 7067 imemmelnmks 000, Sseabiger ee Amended net, se prose, Se Mulkiple-choice questions + 2c 3c