Control Accounts (Copy)
3. Verification of Accounting Records
3.4 Control Accounts
Definition and Purpose of Control Accounts
- Control accounts are summary accounts in the general ledger that reflect the totals of individual accounts in the sales ledger (for customers) and purchases ledger (for suppliers).
- They are used to maintain control over a large number of individual ledger accounts and to help detect errors.
Types of Control Accounts
- Sales Ledger Control Account (Receivables Control Account)
- Summarises all amounts owed by credit customers
- Represents the total trade receivables
- Purchases Ledger Control Account (Payables Control Account)
- Summarises all amounts owed to credit suppliers
- Represents the total trade payables
Purposes of Control Accounts
- Act as a check on the accuracy of the sales and purchases ledger.
- Detect errors, omissions, or fraud in subsidiary ledgers.
- Provide quick access to total receivables or payables without listing individual accounts.
- Help in preparing financial statements.
- Save time during the audit process.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
Sources of Information for Control Accounts
| Entry Type | Book of Prime Entry |
|---|---|
| Credit sales | Sales Journal |
| Credit purchases | Purchases Journal |
| Returns inwards | Sales Returns Journal |
| Returns outwards | Purchases Returns Journal |
| Receipts from customers | Cash Book (Bank Column) |
| Payments to suppliers | Cash Book (Bank Column) |
| Irrecoverable debts | General Journal |
| Dishonoured cheques | Cash Book / General Journal |
| Interest charged on overdue accounts | General Journal |
| Contra entries | General Journal |
| Refunds to customers | Cash Book |
| Opening and closing balances | Brought forward from subsidiary ledgers |
Format and Structure of Control Accounts
Sales Ledger Control Account (Receivables)
| Debit (Dr) – Increases Receivables | Credit (Cr) – Decreases Receivables |
|---|---|
| Opening balance (debit) | Receipts from customers |
| Credit sales | Sales returns |
| Dishonoured cheques | Irrecoverable debts written off |
| Interest charged on overdue accounts | Refunds |
| Contra entries (offset with payables) | |
| Closing balance (debit) |
Purchases Ledger Control Account (Payables)
| Credit (Cr) – Increases Payables | Debit (Dr) – Decreases Payables |
|---|---|
| Opening balance (credit) | Payments to suppliers |
| Credit purchases | Purchase returns |
| Dishonoured cheques | Refunds from suppliers |
| Contra entries (offset with receivables) | Discount received |
| Closing balance (credit) |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
Example: Sales Ledger Control Account
Given:
- Opening balance (Dr): 5,000
- Credit sales: 18,000
- Returns inwards: 1,500
- Cash received: 14,000
- Irrecoverable debts: 500
- Dishonoured cheque: 1,000
- Interest charged: 200
- Contra entry: 800
- Closing balance: ?
Solution:
Sales Ledger Control Account
| Debit Side | Amount ($) |
|---|---|
| Balance b/d | 5,000 |
| Credit sales | 18,000 |
| Dishonoured cheque | 1,000 |
| Interest charged | 200 |
| Total | 24,200 |
| Credit Side | Amount ($) |
|---|---|
| Cash received | 14,000 |
| Returns inwards | 1,500 |
| Irrecoverable debts | 500 |
| Contra entry | 800 |
| Total | 16,800 |
Closing balance (debit) = 24,200 – 16,800 = 7,400
Example: Purchases Ledger Control Account
Given:
- Opening balance (Cr): 6,000
- Credit purchases: 15,000
- Purchase returns: 2,000
- Payments made: 10,000
- Discount received: 500
- Refund from supplier: 1,000
- Contra entry: 800
- Closing balance: ?
Solution:
Purchases Ledger Control Account
| Credit Side | Amount ($) |
|---|---|
| Balance b/d | 6,000 |
| Credit purchases | 15,000 |
| Total | 21,000 |
| Debit Side | Amount ($) |
|---|---|
| Payments made | 10,000 |
| Purchase returns | 2,000 |
| Discount received | 500 |
| Refund | 1,000 |
| Contra entry | 800 |
| Total | 14,300 |
Closing balance (credit) = 21,000 – 14,300 = 6,700
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
Key Notes for Students
- Do not include cash transactions directly in sales or purchases journals — those are recorded in the cash book.
- You are not required to show double-entry ledger accounts for control accounts.
- You are not required to reconcile control accounts with subsidiary ledgers (individual customer or supplier balances).
- Always check for balance b/d and balance c/d entries on the correct side:
- Debit balances for receivables
- Credit balances for payables