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Cambridge (CIE) IGCSE Your notes

Accounting
Control Accounts
Contents
Purpose of a Control Account
Sales Ledger Control Accounts
Purchases Ledger Control Accounts

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Purpose of a Control Account

Your notes
Purpose of a Control Account
What is a control account?
A control account is a summary of all balances and transactions for trade receivables or for trade
payables
A sales ledger control account summarises all the transactions for trade receivables
A purchases ledger control account summarises all the transactions for trade payables
The totals are found using the books of prime entry rather than the ledger accounts
This is so that errors in the ledger accounts can be easily identified
The closing balance is found for the control account and compared to the sum of the closing balances
in the sales ledger accounts or the purchases ledger accounts
If there are no errors, these figures will be equal

What is the purpose of a control account?

To provide a summary of transactions for that type of account
A sales ledger control account gives a summary of all transactions with credit customers
A purchases ledger control account gives a summary of all transactions with credit suppliers

Do control accounts identify all errors?

Control accounts do not identify all errors
This is similar to the trial balance
The following errors are not identified
Errors of commission
Errors of omission
When a transaction is not entered into the books of prime entry
Errors of original entry

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When a transaction is entered into the books of prime entry with an incorrect amount
Compensating errors
Your notes
What are contra entries?
A person or business may be both a credit customer and a credit supplier
If a business owes some money to a person but is also owed money by that person then they can
agree to offset the common balance
This is known as a contra entry
The offset is done without any exchange of money
The book of prime entry for contra entries is the general journal
Journal entries will be made with a narrative
Entries will then be made to the ledger accounts:
Debit the trade payables account
Credit the trade receivables account

CASE STUDY
Aadam owes Brie $500. Brie owes Aadam $300.
Instead of paying each other $300, they agree to offset Brie's balance against Aadam's. This means
they each reduce their balance by $300 without exchanging any money.
Aadam now owes Brie $200. Brie now does not owe any money to Aadam.

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Sales Ledger Control Accounts

Your notes
Sales Ledger Control Accounts
What is a sales ledger control account?
A sales ledger control account is an account that summarises all the transactions for trade
receivables
It is not part of the double entry system

Where do I find the information to complete a sales ledger

control account?
The books of prime entry are used to find the totals
The sales journal is used to find the total value of credit sales
The sales returns journal is used to find the total value of returned goods
The cash book is used to find the total values for:
Money received from credit customers
Money refunded to credit customers
Cash discounts allowed to credit customers
Dishonoured cheques received from credit customers
The journal is used to find the total values for:
Interest charged to credit customers on overdue accounts
Contra entries against the purchases ledger
Irrecoverable debts written off

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Your notes

EXAM TIP
The ledger accounts are not used when preparing control accounts. The information is taken from
the books of prime entry.

Why might there be a credit balance in a sales ledger control

account?
A trade receivables account will usually have a debit balance
This indicates that the credit customer owes the business money
However, a trade receivables account could have a credit balance
This indicates that the credit customer is owed money
Credit balances can occur when:

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Credit customers pay in advance of buying goods

Credit customers make an overpayment Your notes
The business owes refunds to credit customers
The customers have paid for goods and then returned them
Debit and credit balances are totalled separately in the sales ledger control account
This means there could be two opening balances and two closing balances
What is the layout of a sales ledger control account?
The layout looks very similar to the layout of a trade receivables ledger account
The main differences are:
There could be two opening balances
There could be two closing balances

Entries on the debit side: Entries on the credit side:

Opening balance Opening balance

Credit customers who owe money Credit customers who are owed money
Sales Sales returns
Credit sales only Credit sales only
Interest Bank
Bank transfers from credit customers
Cash
Cash received from credit customers
Discount allowed
Irrecoverable debts
Contra entries

EXAM TIP

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Remember that cash sales are not recorded in the sales ledger. Only enter cash received from credit
customers when the cash is used to make a payment towards an invoice.
Your notes

WORKED EXAMPLE
Kimi maintains a full set of account records. She provides the following information for February
2024.

On 1 February 2024

Sales ledger control account debit balance b/d 12 780

Sales ledger control account credit balance b/d 150

Totals for February 2024

Credit sales 25 470

Cash sales 5 780

Credit sales returns 7 000

Cheques received by credit customers 18 450

Cash received by credit customers 1 400

Discount allowed 3 290

Interest charged to credit customers 860

Contra purchases ledger 1 050

Irrecoverable debts written off 870

At 29 February, the total amount that Kimi owed to her credit customers was $460.
Prepare the sales ledger control account for February 2024. Balance the account and bring down
the balances on 1 March 2024.
Answer
Ignore the cash sales, as they do not affect the sales ledger accounts.
Enter the balances and totals on the correct sides of the account.

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Transactions which increase the amount owed to the business appear on the debit side.
Credit sales Your notes
Interest
Transactions which reduce the amount owed to the business appear on the credit side.
Receipts from credit customers using cash or bank transfers
Sales returns
Discount allowed
Irrecoverable debts
Contra entries
On 1 March 2024, there will be a credit balance of $460; therefore, there will need to be a balance
c/d on the debit side on 29 February 2024.
Kimi
Sales Ledger Control Account

Date Details $ Date Details $

2024 2024
12 780 Balance b/d 150
Feb 1 Balance b/d Feb 1

29 Sales 25 470 29 Sales returns 7 000

29 Interest 860 29 Bank 18 450

29 Balance c/d 460 29 Cash 1 400

29 Discount allowed 3 290

29 Contra 1 050

29 Irrecoverable debts 870

29 Balance c/d 7 360

39 570 39 570

Mar 1 Balance b/d 7 360 Mar 1 Balance b/d 460

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Purchases Ledger Control Accounts

Your notes
Purchases Ledger Control Accounts
Where do I find the information to complete a purchases
ledger control account?
The books of prime entry are used to find the totals
The purchases journal is used to find the total value of credit purchases
The purchases returns journal is used to find the total value of returned goods
The cash book is used to find the total values for:
Money paid to credit suppliers
Money refunded by credit suppliers
Cash discounts received from credit suppliers
The journal is used to find the total values for:
Interest charged by credit suppliers on overdue accounts
Contra entries against the sales ledger

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Your notes

EXAM TIP
The ledger accounts are not used when preparing control accounts. The information is taken from
the books of prime entry.

Why might there be a debit balance in a purchases ledger

control account?
A trade payables account will usually have a credit balance
This indicates that the business owes the credit supplier money
However, a trade payables account could have a debit balance
This indicates that the credit supplier owes the business money
Debit balances can occur when:
The business pays credit suppliers in advance

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The business makes overpayments to credit suppliers

The business is owed refunds from the credit suppliers Your notes
The business has paid for goods and then returned them
Debit and credit balances are totalled separately in the purchases ledger control account
This means there could be two opening balances and two closing balances
What is the layout of a purchases ledger control account?
The layout looks very similar to the layout of a trade payables ledger account
The main differences are:
There could be two opening balances
There could be two closing balances

Entries on the debit side: Entries on the credit side:

Opening balance Opening balance

Money that credit suppliers owe Money owed to credit suppliers
Purchases returns Purchases
Credit purchases only Credit purchases
Bank Interest
Bank transfers to credit suppliers
Cash
Cash paid to credit suppliers
Discount received
Contra

EXAM TIP
Remember that cash purchases are not recorded in the purchases ledger. Only enter cash paid to
credit suppliers when the cash is used to make a payment towards an invoice.

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WORKED EXAMPLE
Your notes
Mika is a trader. He has provided the following information

2023 $

1 March Purchases ledger control account credit balance 17 150

Purchases ledger control account debit balance 1 350

2024

29 February Totals for the year:

Credit purchases 231 200

Cash purchases 5 000

Bank payments to credit suppliers 210 600

Cash payments to credit suppliers 1 500

Returns to credit suppliers 6 400

Discount received 3 200

Contra entries 2 100

Interest charged by credit suppliers 800

Purchases ledger control account credit balance ?

Purchases ledger control account debit balance 450

Prepare the purchases ledger control account for the year ended 29 February 2024. Balance the
account and bring down the balances on 1 March 2024.
Answer
Ignore the cash purchases, as they do not affect the purchases ledger accounts.
Enter the balances and totals on the correct sides of the account.
Transactions which increase the amount the business owes appear on the credit side.
Credit purchases

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Interest
Transactions which reduce the amount the business owes appear on the debit side.
Your notes
Payments to credit suppliers using cash or bank transfers
Purchases returns
Discount received
Contra entries
At the end of the month there is $450 debit balance. On 1 March 2024, there will be a debit balance
of $450; therefore, there will need to be a balance c/d on the credit side on 29 February 2024.
Mika
Purchases Ledger Control Account

Date Details $ Date Details $

2023 2023
1 350 Balance b/d 17 150
Mar 1 Balance b/d Mar 1

2024 2024
Feb 29 Bank 210 600 Feb 29 Purchases 231 200

29 Cash 1 500 29 Interest 800

29 Purchases returns 6 400 29 Balance c/d 450

29 Discount received 3 200

29 Contra 2 100

29 Balance c/d 24 450

249 600 249 600

Mar 1 Balance b/d 450 Mar 1 Balance b/d 24 450

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