Chapter 14 - Control Accounts


A sales ledger is used to record credit customers account (trade receivables) and a purchases ledger is used to record credit suppliers account (trade payables). Control accounts are prepared from books of prime entry to check the arithmetical accuracy of the sales ledger and purchases ledger. Control accounts may also be used to:

  • Act as a deterrent against fraud.
  • Locate errors made in the sales ledger and purchases ledger quickly and easily.
  • Calculate total trade receivables and total trade payables quickly.
  • Help in the preparation of trial balance.
  • Calculate credit sales and credit purchases in case of incomplete records

There are two types of control accounts:

  • Sales ledger control account (total trade receivables control account)
  • Purchases ledger control account (total trade payables control account)

Contra entries

A credit customer may also be a credit supplier in a business. Therefore we may set off the lowest amount between the customer and the supplier. The double entry to record the contra entry between the purchases ledger and the sales ledger is as follows:

Debit               Purchases ledger control account

Credit              Sales ledger control account


Credit balance in sales ledger

The main reasons for the sales ledger control account to have a credit balance are:

  • Overpayment made by the customer.
  • Advanced payment or deposit made by customer.
  • Return inwards made by customer after effecting payments.

Debit balance in purchases ledger

The main reasons for a purchases ledger account to have a credit balance are:

  • Overpayment made by the business (overpayment made to supplier).
  • Advanced payment or deposit made by the business
  • Return outwards made to the supplier after effecting payments.

Items not recorded in control account:

  • Cash sales and cash purchases
  • Provision for doubtful debts
  • Return inwards made from cash sales
  • Return outwards made from cash purchases



DR

Sales ledger control account / Total trade receivables control account

CR

Jan  1

Balance b/f (major)

***

Jan  1

Balance b/f (minor)

***

Jan 31

Credit sales

***

Jan 31

Return inwards

***


Dishonoured cheque

***


Bad debts

***


Interest charged on overdue accounts

***


Discount allowed

***


Refund to customers

***


Cash / cheques received

***


Balance c/d

***


Contra / set off

***





Balance c/d

***



***



***

Feb 1

Balance b/d

***

Feb 1

Balance b/d

***





(CR balance in sales ledger)



DR

Purchases ledger control account /Total trade payables control account

CR

Jan  1

Balance b/f (minor)

***

Jan  1

Balance b/f (major)

***

Jan 31

Return Outwards

***

Jan 31

Credit purchases

***


Payments to suppliers

***


Refund from suppliers

***


Discount received

***


Interest charged by suppliers

***


Contra / Set off

***


Balance c/d

***


Balance c/d

***






***



***

Feb 1

Balance b/d

***

Feb 1

Balance b/d

***


(DR balance in purchases ledger)






Worked Example

Prepare a sales ledger control account and purchases ledger control account from the following information for the month of January:


$

1-Jan

Sales ledger balance

12 750


Purchases ledger balance

8 845

31-Jan

Credit sales

35 900


Credit purchases

24 555


Return inwards

1 200


Return outwards

1 300


Discount allowed

570


Discount received

490


Bad debts

1 110


Dishonoured cheque

2 60


Interest charged on overdue accounts

450


Refund to customers

240


Contra entry / Set off

350


Receipts from customers

31 200


Payment to suppliers

21 435


Debit balances in purchases ledger

140


Credit balances in sales ledger

150


DR

Sales ledger control account

CR



$



$

Jan  1

Balance b/f (major)

12 750

Jan  1

Balance b/f (minor)

***

Jan 31

Credit sales

35 900

Jan 31

Return inwards

1 200


Dishonoured cheque

260


Bad debts

1 110


Interest on overdue accounts

450


Discount allowed

570


Refund to customers

240


Cash/ cheques received

31 200


Balance c/d

150


Contra/ set off

350





Balance c/d

15 320



49 750



49 750

Feb 1

Balance b/d

15 320

Feb 1

Balance b/d

150





(CR balance in sales ledger)



DR

Purchases ledger control account

CR



$



$

Jan  1

Balance b/f (minor)

***

Jan  1

Balance b/f (major)

8 845

Jan 31

Return Outwards

1 300

Jan 31

Credit purchases

24 555


Payments to suppliers

21 435


Balance c/d

140


Discount received

490





Contra / Set off

350





Balance c/d

9 965






33 540



33 540

Feb 1

Balance b/d

140

Feb 1

Balance b/d

9 965


(DR balance in purchases ledger)






Q1

Prepare a sales ledger control account and purchases ledger control account from the following information:



$


1-Mar

Sales ledger balance

2 456



Purchases ledger balance

1 874


31-Mar

Credit sales

8 765



Credit purchases

6 745



Return inwards

124



Return outwards

116



Discount allowed

237



Discount received

256



Bad debts

277



Interest charged on overdue accounts

324



Refund to customers

198



Contra entry / Set off

230



Receipts from customers

5 875



Payment to suppliers

5 245



Debit balances in purchases ledger

95



Credit balances in sales ledger

75


Q2

Prepare a sales ledger control account and purchases ledger control account from the following information:



$


1-May

Sales ledger balance

11 445



Purchases ledger balance

9 875


31-May

Credit sales

15 235



Credit purchases

10 435



Return inwards

145



Return outwards

1 255



Discount allowed

1 765



Discount received

1 675



Bad debts

1 435



Interest charged on overdue accounts

555



Refund to customers

165



Contra entry / Set off

175



Receipts from customers

17 345



Payment to suppliers

14 355



Debit balances in purchases ledger

155



Credit balances in sales ledger

115