control accounts

1. CONTROL ACCOUNTS
1

2. 2

3. 3

4. 4

5. 5

6. 6

7. 7

8. 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.
8

9. 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.
9

10. SALES LEDGER CONTROL ACCOUNT
 Sales ledger control account = Total debtors
account
10

11. 11
Sales Ledger Control Account
1996 $
Dec 1 Balance b/f a
31 Sales b
31 Cash / Bank c
31 Bank d
31 Bills receivable e
31 Interest received f
31 Bad debts recovered g
31 Balance c/f h
x
1996 $
Dec 1 Balance b/f i
31 Returns Inwards j
31 Cash / Bank k
31 Bills receivable l
31 Set-off m
31 Discount allowed n
31 Bad debts o
31 Balance c/f p
x

12. Items Sources
a. Total of opening debit balance of
debtors
Sales ledger
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 balances
of debtors
Sales ledger
12

13. 13
i. Total of opening credit balances
of debtors
Sales ledger
j. Returns inwards Returns inwards
journal
k. Cash or cheques received from
debtors
Cash book
l. Bills receivable from debtors Journal
m. Balances in sales ledger set off
Journal
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 of
debtors
Sales ledger

14. PURCHASES LEDGER CONTROL ACCOUNT
 Purchases ledger control account = Total
creditors account
14

15. 15
Purchases Ledger Control Account
1996 $
Dec 1 Balance b/f a
31 Returns Outward b
31 Cash / Bank c
31 Bills Payable d
31 Set-off e
31 Discounts Received f
31 Balance c/f h
x
1996 $
Dec 1 Balance b/f h
31 Purchases i
31 Cash / Bank j
31 Bank k
31 Bills Payable l
31 Interest Expenses m
31 Balance c/f n
x

16. 16
Items Sources
a. Total of opening debit
balances of creditors
Purchases ledger
b. Returns outwards Returns outwards
journal
c. Cash or cheques paid to
creditors
Cash book
d. Bills payable to creditors Journal
e. Balances in purchases ledger
Journal
set off against debit balances in
sales ledger
f. Discounts received Cash book
g. Total of closing credit
balances of creditors
Purchases ledger

17. 17
h. Total of opening credit balances
of creditors
Purchases
ledger
i. Total credit purchase Purchases
journal
j. Cash refund from suppliers who
have overcharged us
Cash book
k. Dishonoured cheques returned
from creditors
Cash book
l. Dishonoured bills returned from
creditors
Journal
m. Interest payable on overdue
debts
Journal
n. Total of closing debit balances
of creditors
Purchases
ledger

18. TYPES OF MINORITY BALANCES
 Temporary debit balances in total creditors
account
 Temporary credit balances in total debtors
account
18

19. REASONS FOR THE OCCURRENCE OF
MINORITY BALANCES
 Returns after settlement of the accounts
 Claims for shortages of goods or for invoices
overcharged after settlement the accounts
19

20. MINORITY BALANCES ON THE BALANCE
SHEET
20
Balance sheet
Debtors (debit balance of sales ledger + debit
balance of purchases ledger) X
八
Less: provision for bad debt (debit balance of
sales ledger x percentage) X
Creditors (credit balances of purchases
X
ledger + credit balances of sales
ledger) X

21. 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
21

22. 22
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
Credit purchases 14,000

23. 23
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 500
Balances in sales ledger set off against credit
Balances in purchases ledger 2,600

24. EXAMPLE 1
24

25. 25
Total creditors account
31/3 discount received 5400
Returns outwards 700
Set-off 2600
Cash 30000
Bal c/f 3800
31/3 bal b/f 28500
31/3 purchases 14000
42500 42500
Total debtor accounts
31/3 Bal b/f 67300
Sales 20000
Bank 500
31/3 discount allowed 4200
Returns inwards 900
Bad debts 100
Cash 25000
Bill receivable 11000
Set-off 2600
Bal c/f 44000
87800 87800

26. COMPARING SECTIONAL BALANCING
AND SELF-BALANCING SYSTEM
26

27. SELF-BALANCING SYSTEM
• In larger organizations, control accounts are
part of the double entry system,
• The sales ledger and purchases ledger
(debtors and creditor accounts) are kept
only on a memorandum purposes
.
27

28. 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
28

29. Sales Ledger control a/c
Purchases ledger control a/c
29
Original
documents
Sales/Purchases
Journals
General ledger
Sales and purchases a/c
Sales/purchases ledgers
Debtors/Creditors
Trial Balance
Double-entry system
For memorandum
purpose
Sectional Balancing System
Note: posting
extracting

30. 30
Self-Balancing System
Original
documents
Sales/Purchases
Journals
General ledger
Sales and purchases a/c
Sales/purchases ledgers
Debtors/Creditors
Trial Balance
Double-entry system
For memorandum
purpose
Sales Ledger control a/c
Purchases ledger control a/c
Note: posting
extracting

31. TRANSACTION RECORDING
31

32. Seller’s book
32

33. Transactions Self-balancing System Sectional
Balancing
System
A Credit sales Dr Sales Ledger Control
Cr Sales
Dr Debtors
Cr Sales
B Receipts from
debtors
Dr Cash / Bank
Cr Sales Ledger Control
Dr Cash/Bank
Cr Debtors
C Return inwards Dr Return Inwards
Cr Sales Ledger Control
Dr Return
inwards
Cr Debtors
D Discount
allowed
Dr Discount Allowed
Cr Sales Ledger Control
Dr Discount
Allowed
Cr Debtors
33

34. 34
Transactions Self-balancing System Sectional
Balancing
System
E Bad debts
written off
Dr Bad debts
Cr Sales Ledger Control
Dr Bad debts
Cr Debtors
F Bad debt
recovered Dr Sales Ledger Control
Cr Bad debts recovered
Dr Cash / Bank
Cr Sales Ledger Control
Dr Cash/Bank
Cr Debtors

35. BUYER’S BOOK
35

36. 36
Transactions Self-balancing System Sectional
Balancing
System
A Credit
purchases
Dr Purchases
Cr Purchases Ledger
Control
Dr Purchases
Cr Creditor
B Payment to
creditors
Dr Purchases Ledger
Control
Cr Cash/ Bank
Dr Creditors
Cr Cash/Bank
C Return
outwards
Dr Purchases Ledger
Control
Cr Return Outwards
Dr Creditors
Cr Return
Outwards
D Discount
received
Dr Purchases Ledger
Control
Cr Discount Received
Dr Discount
Allowed
Cr Debtors

37. CORRECTION OF ERRORS
37

38. Errors Self-balancing System Sectional
Balancing
System
a. Credit sales
invoice omitted
Dr Sales ledger Control
Cr Sales
(Increase the debtors ledger
listing.)
Dr Debtors
Cr Sales
(Debit the sales
ledger control
account.)
b. Sales omitted
in journal
Dr Sales Ledger Control
Cr Sales
(Increase the debtors ledger
listing.)
Dr Debtors
Cr Sales
(Debit the sales
ledger control
account.)
38

39. 39
c. Sales of $120
incorrectly
entered in sales
journal as $100
Dr sales Ledger
Control
Cr Sales
(increase the debtors
ledger listing.)
Dr Debtors
Cr Sales
(Debit the sales
ledger control
account.)
d. Sales journal
undercast.
Dr Sales ledger
Control
Cr Sales
(The debtors ledger
listing remains constant,
because only the total
figure is wrong. This
does not affect the
debtors accounts, the
figures for which are
entered individually.)
Dr Suspense
Cr Sales
(Debit the sales
ledger control
account.)
e. Sales of $120
incorrectly
entered as $100
in sales account
Dr Suspense
Cr Sales
Dr Suspense
Cr Sales

40. 40
f. Sales
understated in sales
ledger control
account
Dr Sales Ledger
Control
Cr Suspense
No entry
(Debit the sales
ledger control
account.)
g. Sales of $120
incorrectly debited
to debtor account
as $100.
No entry
(Increase the debtors
ledger listing.)
Dr Debtors
Cr Suspense
h. Balance of sales
has been incorrectly
put to the wrong
side of the trial
balance.
Dr Suspense Dr Suspense
i. Balance of
debtors has been
incorrectly put to
the wrong side of
the trial balance.
No entry Cr Suspense

41. 41
j. Balance of sales
ledger control account
has been incorrectly
put to the wrong side
of the trial balance.
Cr. Suspense No entry

42. EXAMPLE 2
42

43. 43
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

44. 44
Suspense Account
$
Balance b/f 1,200
Discounts received 1,050
2,250
$
Bank 2,250
_____
2,250
Sales Ledger Control Account
$
Balance b/f 30,000
Sales 530
Balance c/d 2,950
33,480
Balance b/d 32,360
$
Bank 1,000
Purchase Ledger Control-set off 120
Balance c/d 32,360
33,480
Balance b/d 2,950

45. 45
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 c/d 16,500
______
16,620
Balance c/d
$
Balance b/d 12,000
Returns Outwards 3,200
Balance c/d 1,420
16,620
Balance b/d 16,500

46. Statement showing the Revised Balance of Purchases Ledger Listing
46
$
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

47. 47
John Chan
Balance Sheet as at 31 Dec 1996
$ $
Fixed Asset 12,000
Less Prov. For Depn. 5,000
7,000
Current Assets
Stock 16,000
Debtors (32360+1420) 33,780
Bank (7000+1000+2250) 10,250 60,030
67,030
$
Capital
Balance as at 1 Jan 96 38,000
Add Net Profit 9,580
47,580
Current Liabilities
Creditors(16500+2950) 19,450
______
67,030