CHAPTER – 11

CONTROL ACCOUNTS
Accounting for Receivables and Payables

Sr. Lecture video

Course Outline Topics
No
1 Why Control Account are Maintained 96
2 Formats of Debtors Control Accounts 97
3 formats of Creditors Control Accounts 98 and 99
4 Posting from Journal to individual accounts 100
5 Posting from Journal to control accounts 101
6 Important Tips to Remember 102
7 Practice - Control Account Reconciliation 103 and 104
8 Practice - Control Account Reconciliation 105
Topic videos 96-105 are mandatory part of this module
Why Control Accounts are maintained
Control Account is a simple ledger account that represents numerous ledger accounts of similar nature.
Entities, that grow in size, face difficulties in establishing control over multiple transactions under same
head of account. This encounter is resolved through developing a system of maintaining control accounts.
For example, an entity deals with more than one hundred number of credit customers. The accountant of
this entity would be required to report amount receivable from each individual customer as well as the
recoverable amount from total receivables (debtors). In this case, for each individual customer, a debtor
ledger account will be maintained as a memorandum or subsidiary record that will not be a part of the
main/general ledger, whereas one controlling ledger account shall be prepared in the main/general ledger
that will show total balance receivable from all the debtors. This single ledger account is known as Control
Account because of its function to control all the individual debtor’s ledger accounts.
Mostly, entities maintain control accounts for trade receivables, trade payables, payroll, and inventory.
This chapter will discuss accounting system based on control accounts for trade receivables (debtors) and
trade payables (creditors).
Formats of Debtors and Creditors Control Accounts
Following are the maximum possible items that may appear in Debtors Control Account and Creditors
Control Account. While preparing Debtors Control Account, it must be noticed that its debit side should
show the items that will cause increase in debtors’ balance and items in credit side will cause a decrease
in debtors’ balance.
In the same way items that will cause increase in creditors balance are put in its credit side and items that
will cause decrease in creditors balance are put in the debit side of Creditors Controls Account.
Let’s go through the following formats of Debtors Control Account and Creditors Control Account:

Debtors’ Control A/C

Trade Receivable Control A/C

Opening Dr. Balance b/f Opening Cr. Balance b/f

Credit sales (Invoice issued) Cash received from debtors
Refund to debtors Cheques received from debtors
Cheques dishonoured Bills receivable accepted by debtors
Bills receivable dishonoured Discount allowed
Interest charged to debtors Bad debts
Sales return (Credit note issued)
Contra / set off / balance transferred
Closing Cr. Balance c/f Closing Dr. balance c/f

Creditors Control A/C

Trade Payable Control A/C

Opening Dr. Balance b/f Opening Cr. Balance b/f

Cash paid to creditors Credit purchases (Invoice received)
Cheques paid to creditors Bills payable dishonoured
Bills payable given to creditors Interest payable
Discount received
Purchases return (Credit note received)
Contra / set off / balance transferred
Closing Cr. Balance c/f Closing Dr. balance c/f
Practice 11.1 Posting from journals to individual accounts and control accounts

BOOKS OF ORIGINAL ENTRIES

Purchase Journal / Day book Sale Journal / Day book
DATE PARTICULARS Rs. DATE PARTICULARS Rs.
A 2,000 O 5,000
B 3,000 P 2,000
C 1,000 Q 1,000
D 4,000 O 2,000
A 2,500 R 7,000
D 1,000 Q 2,000
B 3,000 P 3,000
O 1,000
16,500 23,000
Purchases A/c. Dr Debtors Control A/c. Dr.
Creditors Control A/c. Cr Sales A/c. Cr.

Purchase Return Journal / Day book Sale Return Journal / Day book
DATE PARTICULARS Rs. DATE PARTICULARS Rs.
A 1,500 P 500
C 1,000 O 1,500
D 2,000 Q 1,000
4,500 3,000
Creditors Control a/c Dr Sales Return a/c Dr
Purchases Return a/c Cr Debtor Control a/c Cr

General Journal / Transfer Journal

DATE PARTICULARS Dr. Cr.
Bad Debts A/c. 500
Debtor "O" A/c. 500

CASH BOOK
DISC. DEBTOR TOTAL DISC. CREDITOR Total
Rs. Rs. Rs. Rs. Rs. Rs.
O 3,000 A 100 700
P 100 150 B 2,000
Q 50 700 D 200 1,500
O 2,000 C 2,500
R 5,000 B 1,000
P 1,000 A 500
150 11,850 300 8,200
 SUBSIDARY / MEMORANDUM LEDGER

DEBTORS LEDGER / SALES LEDGER

O account Rs. Rs. P account Rs. Rs.
Sales Journal 5,000 Sales Return 1,500 Sales Journal 2,000 Sales Return 500
Sales Journal 2,000 Cash Received 3,000 Sales Journal 3,000 Cash Received 150
Sales Journal 1,000 Cash Received 2,000 Cash Received 1,000
Bad Debts 500 Disc. Allowed 100
Balance c/f 1,000 Balance c/f 3,250
8,000 8,000 5,000 5,000
Q account Rs. Rs. R account Rs. Rs.
Sales Journal 1,000 S.R.J. 1,000 Sales Journal 7,000 Cash Rec 5,000
Sales Journal 2,000 Cash Rec. 700 Balance c/f 2,000
Disc All. 50
Balance c/f 1,250
3,000 7,000 7,000
LIST Rs.
O 1,000
P 3,250
Q 1,250
R 2,000
Total 7,500

CREDITORS LEDGER / PURCHASE LEDGER

A account Rs. Rs. B account Rs Rs.
Purchase return 1,500 Purchase Journal 2,000 Cash Paid 2,000 Purchase Journal 3,000
Cash Paid 700 Purchase Journal 2,500 Cash Paid 1,000 Purchase Journal 3,000

Cash Paid 500 Balance c/f 3,000

Disc Received 100
Bal. c/f 1,700 6.000 6,000
4,500 4,500
D account Rs. Rs.
C account Rs. Rs. Purchase return 2,000 Purchase Journal 4,000
Purchase return 1,000 Purchase Journal 1,000 Cash Paid 1,500 Purchase Journal 1,000
Cash Paid 2,500 Bal. c/f 2,500 Disc Received 200
Balance c/f 1,300
3,500 3,500
5,000 5,000
LIST Rs.
A 1,700
B 3,000
C -2,500
D 1,300
Total 3,500
MAIN LEDGER
Debtors Control A/c
Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Opening balance b/f 0 Cash received 11,850
Sales 23,000 Sales return 3,000
Bed debts 500
Discount allowed 150
_____ Closing balance c/f 7,500
23,000 23,000

Creditors Control A/c

Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Cash paid 8,200 Opening balance b/f 0
Purchase return 4,500 Purchases 16,500
Discount received 300
Closing Balance c/f 3,500 ______
16,500 16,500

Sales Return A/c

Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Sales Journal 3,000 Income statement 3,000
3,000 3,000

Purchases Return A/c

Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Income statement 4,500 Purchase Journal 4,500
4,500 4,500
 Sales A/c
Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Income statement 23,000 Sales Journal 23,000
23,000 23,000
Purchases A/c
Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Purchases Journal 16,500 Income statement 16,500
16,500 16,500
Discount Allowed A/c
Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Debtors control A/c. 150 Income statement 150
150 150

Discount Received A/c

Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Income statement 300 Creditors control a/c 300
300 300

Bad Debts A/c

Particulars Debit Particulars Credit
Rs. Rs.
20X9 20X9
Debtors control A/c. 500 Income statement 500
500 500
Important Tips to Remember (ITTRs)
1. A control account is a ledger account that appears in the main/general ledger, it summarises
large volumes of transactions.
2. The debtors control account (sales ledger control account - total debtors account)
• is used to record all transactions with credit customers
• balance shows the total amount currently owed by all credit customers, this balance
should agree with the list of individual balances extracted from the Sales Ledger (a
memorandum ledger containing ledger accounts of individual debtors).
3. The creditors control account (purchase ledger control account - total creditors account).
• is used to record all transactions with credit suppliers
• balance shows the total amount currently owed to all credit suppliers, this balance
should agree with list of individual balances extracted from the Purchase Ledger (a
memorandum ledger containing ledger accounts of individual creditors)
4. Debtors Control a/c might produce two balances i.e. Dr. and Cr in this case the account will look
like:
Debtors Control Account
Opening Dr Balance Opening Cr Balance (unusual)
Closing Cr Balance (unusual) Closing Dr Balance
5. Creditors Control a/c might produce two balances i.e. Dr. and Cr in this case the account will look
like
Creditors Control Account
Opening Dr Balance (unusual) Opening Cr Balance
Closing Cr Balance Closing Dr Balance (unusual)

6. Regardless of the nature of ledger account, opening Dr balance would always appear in its debit
side and opening Cr balance would always appear in its credit side.
7. Closing balances always appear in opposite side i.e. closing Dr balance will appear in credit side
and closing Cr balance will appear in Dr side.
8. There might be a situation that a person who is Debtor (Customer) for the entity is also a
Creditor (Supplier) of the same entity with different outstanding amounts.
For example; Mohsin is Debtor with Rs.700 and Mohsin is also Creditor with Rs.500. In this case
contra entry would be required to set-off these two balances. Contra entry is always recorded
with lower balance of outstanding amount, in this case Rs. 500.
The contra entry would be:
Creditors Control A/c. (Mohsin) Dr. 500
Debtors Control A/c. (Mohsin) Cr 500
9. In case Mohsin is Debtor with Rs.700 and Mohsin is also a creditor with Rs 1,000, the contra
entry would remain the same as above but the amount would then be Rs. 700 the lower one:
Creditors Control (Mohsin) Dr 700
Debtors Control (Mohsin) Cr 700
10. Balance as per sales ledger means the balance as per list of debtors in sales ledger, whereas
balance as per sales ledger control account means the total debtors balance in the main ledger /
nominal ledger.
11. Cr balance in Debtors account might arise because of cash received in advance.
12. Dr balance in Creditors account might arise because of cash paid in advance.
13. Names of Accounting Records that are often confused by the students.
a. Sales journal / day book is a Book of original entry (for credit sales)
b. Sales ledger is a Subsidiary ledger (a book for debtors)
c. Sales ledger control a/c is a Debtors control a/c in main/nominal ledger
d. Sales account is a Sales income in main/nominal ledger

a. Purchase journal / day book is a Book of original entry (for credit purchases)
b. Purchase ledger is a Subsidiary ledger (a book for creditors)
c. Purchase ledger control a/c is a Creditor control a/c in main/nominal ledger
d. Purchase account is a Purchase expense in main/nominal ledger
14. Closing balance of control account may not agree with total of the list of individual balances
extracted from the subsidiary ledger
a) Any difference must be investigated and corrections made
b) This may involve adjustments:
▪ to the control account; and/or
▪ to the list of balances as per subsidiary ledgers

Reasons of difference Amendments

I Books of Original Entries
a. Recording error Control a/c and List
b. Casting error Control a/c only

II Main Ledger - Control Accounts

a. Posting error Control a/c only
b. Casting error Control a/c only

III Subsidiary Ledger – Individual Accounts

a. Posting error List only
b. Casting error List only

IV List of Balances
a. Listing error List only
b. Casting error List only
Practice 11.2
Waheed & Sons have an accounting year ended 30 June 20X9. At that date the balance on the receivables
ledger control account was Rs.130,000, but the total of the individual accounts in the receivables ledger
came to Rs.127,240.
Upon investigation the following facts were discovered:
1. The sales day book total for week 22 had been overcast by Rs.600.
2. A credit balance of Rs.420 on Oreem’s account had been incorrectly treated as a debit entry
when listing the receivables ledger.
3. A contra of Rs.3,000 has been entered in Bungish’s account in the receivables ledger but no other
entry had been made.

The adjusted balance on the debtors control account is:

Particulars Debit Particulars Credit

Rs. Rs.
30 June 20X9 30 June 20X9
Balance b/f (reopened) 130,000 Sales day book over cast by 600
Contra entry in Bungish account 3,000
Balance c/f 126,400
130,000 130,000

The adjusted balance on the list of individual debtors is:

Rs.
Balance as per list of individual balances 30 June 20X9 (Dr.) 127,240
Credit balance of Oreem account treated as debit balance (420 x 2) (Cr.) - 840
Adjusted Balance as per list of individual debtors on 30 June 20X9 (Dr.) 126,400
Exercise Question 11.3
Babar Shafi prepared the following payables ledger reconciliation statement on 30th June 20X9:
Rs.
Balance on purchase ledger control account Cr. 46,865
Payment entered twice in purchase ledger control account Cr. 573
–––––––
Cr. 47,438
Purchase daybook overcast Dr. 900
–––––––
Total of list of balances Cr. 46,538
–––––––
Which balance should be reported in the balance sheet as on 30 th June 20X9?

Particulars Debit Particulars Credit

Rs. Rs.
30th June 20X9 30th June 20X9
Purchase day book overcast 900 Balance b/f 46,865
Payment posted twice in control account 573
Balance c/f (Liability) 46,538
47,438 47,438
Exercise Question 11.4
Jamil is preparing a reconciliation of the balance on the creditors ledger control account appearing in the
general ledger to the total of the list of balances on the individual accounts in the purchase ledger. He has
discovered the following:
(i) a debit balance on a supplier’s individual account was listed as a credit balance;
(ii) an invoice for Rs.2,900 was entered in the purchase day book as Rs.9,200.

Which of the errors will require an adjustment to the creditors ledger control account?

A neither (i) nor (ii)

B (i) only
C (ii) only
D both (i) and (ii)

Exercise Question 11.5

At 28 February 20Y1 the balance on the trade receivables control account in Durdana Rizvi’s general
ledger was Rs.126,528, and the total of the list of balances from the sales ledger was Rs.125,092.
The following errors were identified:
i. a balance of Rs.79 due from a customer has been omitted from the list of balances;
ii. a debit balance of Rs.200 on a customer’s account has been treated as a credit balance;
iii. a customer paid Rs.2,200 in full settlement of a balance of Rs.2,215. Only the cash received has
been recorded;
iv. no entries have been made for a contra of Rs.780 with the purchases ledger;
v. the total of the sales day book was under-cast by Rs.99;
vi. the total of credit notes issued to customers in February, Rs.528, was posted to the general
ledger as sales invoices; and
vii. a payment of Rs.145 from a customer was recorded in the cash received day book as Rs.154.
Prepare the reconciliation of the total of the list of balances to the corrected general ledger balance.
Trade Receivables Control Account (Adjusted)
Particulars Debit Particulars Credit
Rs. Rs.
28th February 20Y1 28th February 20Y1
Balance b/f 126,528 Discount allowed not recorded (iii) 15
Sales day book undercast 99 Contra entries not recorded (iv) 780
Receipt overstated (vii) 9 Credit note issued recorded as sales (vi) 1,056

Balance c/f 124,785

126,636 126,636
Rs.
Balance on sales ledger list Dr. 125,092
i. Balance omitted from the list Dr. 79
ii. Dr. balance of a customer treated as Cr. balance Dr. 400
iii. Discount allowed not recorded in the books Cr. 15
iv. Contra entry not recorded in the books Cr. 780
vii. Receipt from customer overstated 154 – 145 Dr. 9
–––––––
Adjusted balance of sales ledger list Dr. 124,785
–––––––
MCQs

1. A payables ledger control account showed a credit balance of Rs.768,420. The payables ledger
list totaled Rs.781,200.

Which one of the following possible errors could account in full for the difference?

A. A contra against a receivables ledger debit balance of Rs.6,390 has been entered on the
credit side of the payables ledger control account (by rectifying this error the control
account balance will further reduce by Rs.12,780)
B. The total of discounts allowed Rs.28,400 was entered to the debit side of the payables
ledger control account instead of the correct figure for discounts received of Rs.15,620
C. Rs.12,780 cash paid to a supplier was entered on the credit side of the supplier's
account on the payables ledger(by rectifying this error the control account balance will
further reduce by Rs.25,560)
D. The total of discounts received Rs.6,390 has been entered on the credit side of the
payables ledger control account (by rectifying this error the control account balance will
further reduce by Rs.12,780)
Explanation: Payable Control account balance is showing Rs. 12,780 less balance comparing
with the total of the payables’ list; which means that excess amount has been debited in the
control account.

2. The payables ledger control account below contains a number of errors:

Payables ledger control account

Rs. Rs.
Balance B/F 318,600
Cash paid to suppliers 1,364,300 Purchases 1,268,600
Purchase returns 41,200 Contras against receivables 48,000
Refunds received from suppliers 2,700 Discounts received 8,200
Balance C/F 402,000
1,726,800 1,726,800
All items relate to credit purchases.

What should be the closing balance when all the errors are corrected?

A. $128,200
B. $509,000
C. $224,200
D. $144,600
Payables ledger control account
Rs. Rs.
Balance B/F 318,600
Cash paid to suppliers 1,364,300 Purchases 1,268,600
Purchase returns 41,200 Refunds received 2,700
Contras against receivables 48,000
Discounts received 8,200
Balance C/F 128,200
1,589,900 1,589,900
3. The purchase day book of Humaira has been undercast by Rs.500, and the sales day book has
been overcast by Rs.700. Humaira maintains payables and receivables ledger control accounts as
part of the double entry bookkeeping system.

The effect of correcting these errors will be to:

A. make adjustments to the ledger balances of the individual customers and suppliers, with
no effect on profit
B. make adjustments to the ledger balances of the individual customers and suppliers, with
a decrease in profit of $1 ,200
C. make adjustments to the control accounts, with no effect on profit
D. make adjustments to the control accounts, with a decrease in profit of Rs.1,200
Explanation:
(i) By rectifying under-casting effect of purchase daybook, the cost of goods sold will
increase by Rs.500 and by rectifying over-casting effect of sales daybook the sales
will decrease. Both effects are decreasing profit with Rs. 1,200
(ii) Adjustment in control is always required whenever there is a casting error
occurring in books of original entries, because total sum of the books of original
entries is posted to the control accounts.

4. In reconciling the receivables ledger control account with the list of receivables ledger balances
of SF Traders, the following errors were found:

1. The sales day book had been overcast by Rs.370.

2. A total of Rs.940 from the cash receipts book had been recorded in the receivables
ledger control account as Rs.490.
What adjustments must be made to correct the errors?
A. Credit debtors control account Rs.820. Decrease total of debtors list balances by Rs.820
B. Credit debtors control account Rs.820. No change in total of debtors ledger list
balances.
C. Debit debtors control account Rs.80. No change in total of debtors’ ledger list balances
D. Debit debtors control account Rs.80. Increase total of debtors ledger list balances
byRs.80
Explanation:
(i) By rectifying over-casting effect of sales daybook, the debtors control account will
be credited with 370
(ii) Cash receipt has been less recorded in the debtors control account with Rs. 450,
now it shall be credited in debtors control account.

5. The debit side of a trial balance totals $50 more than the credit side. Which one of the
following could this be due to?

A. A purchase of goods for $50 being omitted from the supplier's account
B. A sale of goods for $50 being omitted from the customer's account
C. An invoice of $25 for electricity being credited to the electricity account
D. A receipt for $50 from a customer being omitted from the cash book (2 marks)

6. A receivables ledger control account had a closing balance of Rs.8,500. It contained a contra to
the receivable ledger of Rs.400, but this had been entered on the wrong side of the control
account.
What should be the correct balance on the control account?
A. Rs.7,700 debit
B. Rs.8,100 debit
C. Rs.8,400 debit
D. Rs.8,900 debit
Explanation: Rectification of double amount Rs.800 will be posted in the credit side of
receivable ledger control account that will decrease the receivable control account balance
to Rs. 7,700.
 7. An inexperienced bookkeeper has drawn up the following receivables ledger control account:

Receivables Ledger Control Account

Rs. Rs.
Opening balance 180,000 Credit sales 190,000
Cash from credit customers 228,000 Irrecoverable debts written off 1,500
Sales returns 8,000 Contras against payables 2,400
Cash refunds to credit customers 3,300 Closing balance (balancing figure) 229,600
Discount allowed 4,200
423,500 423,500

What should the closing balance be after correcting the errors made in preparing the account?
A. $130,600
B. $129,200
C. $142,400
D. $214,600
Rs. Rs.
Opening balance 180,000 Cash from credit customers 228,000
Credit Sales 190,000 Irrecoverable debts written off 1,500
Cash refunds to credit customers 3,300 Contras against payables 2,400
Sales return 8,000
Discount allowed 4,200
Closing balance (balancing figure) 129,200
373,300 373,300