Control Accounts

1
Functions of control accounts

The control accounts help us to locate

errors.
The control accounts provide a summary.
The total balances of the debtors and
creditors can be derived quickly and easily.
The control accounts are prepared by a
different person than the one who prepares
the sales and purchases ledgers, which
also make fraud more difficult.

2
Form of control accounts

It is usual to final control accounts

in the same form as an account,
with the totals of the debit entries
in the ledger on the left-hand side
of the control account, and the
totals of the various credit entries
in the ledger on the right hand side
of the control account.
3
Sales ledger control account

Sales ledger =Total debtors

a/c
control account

4
 Sales Ledger Control Account
1996 $ 1996 $
Dec 1 Balance b/f a Dec 1 Balance b/f i
31 Sales b 31 Returns Inwards
j
31 Cash / Bank c
31 Cash / Bank k
31 Bank d
31 Bills receivable
31 Bills receivable
l
e
31 Set-off (contra)
31 Interest received
m
f
31 Discount allowed
31 Bad debts recovered g
n
31 Balance c/f h
31 Bad debts
o
x 5
 Items Sources
a. Total of opening debit balance Sales ledger
of debtors
b. Total credit sales Sales journal
c.Cash refund to a customer who Cash book
has overpaid his account
d. Dishonoured cheques Cash book
e. Dishonoured bills Journal
f. Interest charged by us on Journal
overdue debts
g. Bad debts recovered Journal
h. Total of closing credit Sales ledger
balances of debtors
6
i. Total of opening credit Sales ledger
balances of debtors
j. Returns inwards Returns
inwards journal
k. Cash or cheques received Cash book
from debtors
l. Bills receivable from debtors Journal
m. Balances in sales ledger set Journal
off against credit balances in
purchases ledger
n. Discounts allowed Cash book
o. Bad debts written off (not Journal
provision for bad debts)
p. Total of closing debit balances Sales ledger
of debtors 7
Purchases ledger control
account
Purchases ledger control account
= Total creditors account

8
 Purchases Ledger Control Account
1996 1996
$ $

Dec 1 Balance b/f a Dec 1 Balance b/f h

31 Returns Outward 31 Purchases
b i
31 Cash / Bank c 31 Cash / Bank j
31 Bills Payable d 31 Bank k
31 Set-off (contra) 31 Bills Payable l
e
31 Interest Expenses
31 Discounts Received f m
31 Balance c/f h 31 Balance c/f n

x x
9
 Items Sources
a. Total of opening debit Purchases
balances of creditors ledger
b. Returns outwards Returns
outwards
journal
c. Cash or cheques paid to Cash book
creditors
d. Bills payable to creditors Journal
e. Balances in purchases Journal
ledger set off against debit
balances in sales ledger
f. Discounts received Cash book
g. Total of closing credit Purchases
balances of creditors ledger
10
h. Total of opening credit Purchases
balances of creditors ledger
i. Total credit purchase Purchases
journal
j. Cash refund from suppliers Cash book
who have overcharged us
k. Dishonoured cheques Cash book
returned from creditors
l. Dishonoured bills returned Journal
from creditors
m. Interest payable on overdue Journal
debts
n. Total of closing debit balances Purchases
of creditors ledger
11
Contra item

If the same firm is both a supplier

(creditor) and a customer (debtor),
inter-indebtedness is set-off
Contra items(set-off) are shown on
the credit side of the sales ledger
control account and will appear on
the debit side of the purchases
ledger control account
15
The following information was extracted from
the books of Lewell Ltd. On 1 March 1996:

Purchases ledger control account

28,500
Sales ledger control account 67,300

During the month:

Cash sales 12,000

Credit sales 20,000
Cash purchases 8,800
16
Discounts received from suppliers
5,400
Discounts allowed to customers
4,200
Returns Inwards 900
Cash received from customers
25,000
Cash payment to suppliers 30,000
Returns Outwards 700
Bad debts written off 100
Bills receivable from customers
11,000
Dishonoured cheques returned to customers 17
Identify the items

18
Purchases ledger control account (P-cr)
28,500
Sales ledger control account (S-dr)
67,300

Cash sales (X) 12,000

Credit sales (S-dr) 20,000
Cash purchases (X) 8,800
Credit purchases (P-cr ) 14,000
Discounts received from suppliers(P-dr)
5,400
Discounts allowed to customers(S-cr)
4,200 19
Cash received from customer(S-cr)
25,000
Cash payment to suppliers (P-dr)
30,000
Returns Outwards(P-dr) 700
Bad debts written off(S-cr) 100
Bills receivable from customers(S-cr)
11,000
Dishonoured cheques returned to customers (S-dr)
500

Balances
in sales ledger set off against credit
Balances in purchases ledger (P-dr) (S-cr) 2,600
20
 Purchase Ledger Control account
31/3 Discount received 5400 1/3 bal b/d 28500
Returns outwards 70031/3 purchases 14000
Set-off 2600
Cash 30000
Bal c/f 3800
42500 42500

Sales Ledger Control accounts

31/3 Bal b/f 67300 31/3 Discount allowed 4200
Sales 20000 Returns inwards 900
Bank 500 Bad debts 100
Cash 25000
Bill receivable 11000
Set-off 2600
Bal c/f 44000
87800 87800

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Textbook exercises
page 398 Review question
31.5

22
Please do Assignment
Question 3

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24
Sectional Balancing System

• In small firms, debtors and

creditors accounts are regarded
part of the double-entry system
• The control accounts should be
kept only for memorandum
purposes

27
Sectional Balancing System
Original
documents

Sales/Purchases
Journals
Sales Ledger control a/c
Purchases ledger control a/c

General ledger Sales/purchases ledgers

Sales and purchases a/c Debtors/Creditors

Trial Balance

For memorandum
Double-entry system purpose

Note: posting
extracting 28
 Self-Balancing System
Original
documents

Sales/Purchases
Journals Sales/purchases ledgers
Debtors/Creditors

General ledger Sales Ledger control a/c

Sales and purchases a/c Purchases ledger control a/c

Trial Balance

For memorandum
Double-entry system purpose

Note: posting
extracting
29
Transaction recording

30
Seller’s book

31
Transactions Self-balancing Sectional
System Balancing
System
A Credit sales Dr Sales Ledger Dr Debtors
Control Cr Sales
Cr Sales
B Receipts from Dr Cash / Bank Dr Cash/Bank
debtors Cr Sales Ledger Cr Debtors
Control
C Return Dr Return Inwards Dr Return
inwards Cr Sales Ledger inwards
Control Cr Debtors
D Discount Dr Discount Allowed Dr Discount
allowed Cr Sales Ledger Allowed
Control Cr Debtors 32
 Transactions Self-balancing Sectional
System Balancing
System
E Bad debts Dr Bad debts Dr Bad debts
written off Cr Sales Ledger Cr Debtors
Control
F Bad debt Dr Cash/Bank
recovered Dr Sales Ledger Cr Debtors
Control
Cr Bad debts
recovered
Dr Cash / Bank
Cr Sales Ledger
Control
33
Buyer’s book

34
Transactions Self-balancing Sectional
System Balancing
System
A Credit Dr Purchases Dr Purchases
purchases Cr Purchases Ledger Cr Creditor
Control
B Payment to Dr Purchases Ledger Dr Creditors
creditors Control Cr Cash/Bank
Cr Cash/ Bank
C Return Dr Purchases Ledger Dr Creditors
outwards Control Cr Return
Cr Return Outwards Outwards
D Discount Dr Purchases Ledger Dr Discount
received Control Allowed
Cr Discount Received Cr Debtors
35
Correction of Errors

36
 Errors Self-balancing Sectional
System Balancing
System
a. Credit sales Dr Sales ledger Control Dr Debtors
invoice omitted Cr Sales Cr Sales
(Increase the debtors (Debit the sales
ledger listing.) ledger control
account.)
b. Sales Dr Sales Ledger Dr Debtors
omitted in Control Cr Sales
journal Cr Sales (Debit the sales
(Increase the debtors ledger control
ledger listing.) account.)

37
c. Sales of Dr sales Ledger Dr Debtors
$120 Control Cr Sales
incorrectly Cr Sales (Debit the sales
entered in (increase the debtors ledger control
sales journal as ledger listing.) account.)
$100
d. Sales Dr Sales ledger Dr Suspense
journal Control Cr Sales
undercast. Cr Sales (Debit the sales
(The debtors ledger ledger control
listing remains account.)
constant, because only
the total figure is
wrong. This does not
affect the debtors
accounts, the figures
for which are entered
individually.)
e. Sales of Dr Suspense Dr Suspense
$120 Cr Sales Cr Sales
incorrectly
entered as 38
f. Sales Dr Sales Ledger No entry
understated in Control (Debit the sales
sales ledger Cr Suspense ledger control
control account account.)
g. Sales of $120 No entry Dr Debtors
incorrectly debited (Increase the debtors Cr Suspense
to debtor account ledger listing.)
as $100.
h. Balance of Dr Suspense Dr Suspense
sales has been
incorrectly put to
the wrong side of
the trial balance.
i. Balance of No entry Cr Suspense
debtors has been
incorrectly put to
the wrong side of
the trial balance.

39
j. Balance of sales Cr. Suspense No entry
ledger control
account has been
incorrectly put to the
wrong side of the
trial balance.

40
Example 2

41
 John Chan
The Journal
Dr Cr
1996 $ $
Dec 31 Sales Ledger Control 530
Sales
530
31 Suspense 1,050
Discount received
1,050
31 Returns Outwards 3,200
Purchase Ledger Control
3,200
31 Purchases Ledger Control 120
Sales Ledger Control
120
31 Bank 1,000
Sales Ledger Control
1,000
31 Bank 2,250
Suspense 2,250
42
 Suspense Account
$ $

Balance b/f 1,200 Bank 2,250

Discounts received 1,050 _____
2,250 2,250

Sales Ledger Control Account

$ $

Balance b/f 30,000 Bank 1,000

Sales 530 Purchase Ledger Control-set off 120
Balance c/d 2,950 Balance c/d 32,360
33,480 33,480
Balance b/d 32,360 Balance b/d 2,950

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 Statement showing the Revised Balance of Sales Ledger Listing
$

Original Balance 32,000

Add Invoice understated 360
Revised Balance 32,360

Purchases Ledger Control Account

$ $

Sales Ledger Control-set-off 120 Balance b/d 12,000

Balance c/d 16,500 Returns Outwards 3,200
______ Balance c/d 1,420
16,620 16,620
Balance c/d Balance b/d 16,500

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Statement showing the Revised Balance of Purchases Ledger Listing
$

Original Balance 17,135

Less Balance overstated 635
Revised Balance 16,500

Statement showing the Revised Net Profit for the year ended 31 Dec 1996
$ $
Net Profit as per accounts 11,200
Add Sales undercast 530
Discounts Received undercast 1,050 1,580
12,780
Less Returns Outwards overcast 3,200
Revised Net Profit 9,580

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 John Chan
Balance Sheet as at 31 Dec 1996
$ $ $

Fixed Asset 12,000 Capital

Less Prov. For Depn. Balance as at 1 Jan 96 38,000
5,000
Add Net Profit 9,580
7,000
47,580
Current Assets
Current Liabilities
Stock 16,000
Creditors(16500+2950) 19,450
Debtors (32360+1420) 33,780
______
Bank (7000+1000+2250) 10,250 60,030
67,030
67,030

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