UNIVERSITY OF TECHNOLOGY, JAMAICA

SCHOOL OF BUSINESS ADMINISTRATION

FUNDAMENTALS OF ACCOUNTING

Control Accounts

CONTROL ACCOUNTS FORMAT

Sales Ledger (Accounts Receivable) Control Account

$ $
Opening debit balance XXXXX Opening credit balance XXX
Credit sales XXXXX Sales returns XXX
Dishonoured cheque Discount allowed XXX
from customer XXX Uncollectable accounts (bad debts) XX
Interest on overdue accounts XX Receipts by cash/ cheques XX
Refund to customers XX Set-off XX
Closing credit balance XXX Closing debit balance XX
XXXXX XXXX

Purchases Ledger (Accounts payable) Control Account

$ $
Opening debit balance XXX Opening credit balance XXX
Purchases returns XX Credit Purchases XX
Payments by cash & cheque Dishonoured cheque to suppliers XX
to suppliers XXXX Interest on over due accounts XX
Set-off XX
Discount received XX
Closing credit balance XXX Closing debit balance XX
XXXX XXXX

Control Accounts

A control account is an account which controls a section of the ledger. The control account is in effect a
summary of all the individual accounts present in that section of the ledger. By control is meant that the balance
on the control account should agree with the total of the balances in the section of the ledger it is controlling.

The following two controls accounts will be looked at:

(1) The Sales ledger control account (Total Accounts Receivable or Accounts Receivable Control Account

The sales ledger control account controls the sales ledger. It represents the total of all the individual trade
accounts receivable present in the sales ledger.

1
(2) The Purchases Ledger Control account (Total Accounts Payable or Account Payable control)

The Purchases ledger control account controls the purchases ledger. It represents the total of all the individual
trade accounts payable in the purchases ledger.

Separation of duties when preparing controls accounts

Effective control is derived from the use of control accounts only when there is separation of duties. That is, the
person who prepares the accounts in the ledger should not be the same person who prepares the control
accounts. For example, the individual who prepares the Sales ledger should not be the individual who also
prepares the Sales ledger control account.

If an individual prepares both sets of records it will be possible for him to manipulate both sets of record so that
they agree. The balance on the control account should agree with the total of the balances of the individual
accounts extracted from the ledger.

When there is a separation of duties, the individual who prepares the ledger will have to bear in mind that there
is someone else also recording the same information on a total basis. This helps to reduce fraudulent intentions.

Purpose of Control Accounts

1. To act as an independent check on the arithmetical accuracy of the aggregates of the balances in the
sales and purchases ledger.

2. To provide quick totals for accounts receivable and accounts payable when preparing a trial balance.

3. To identify ledgers in which errors have been made when there is a difference on a trial balance.

4. To act as an independent internal check on the work of the sales and purchases ledger clerks.

Important points to remember

1. Provision for uncollectible accounts in not recorded in the Accounts receivable control.
2. Trade discounts are not recorded in the control accounts
3. Transactions relating to cash sales and cash purchases are not recorded in the control accounts.
4. When there is a set-off, the smaller balance is always set-off against the larger. This entry affects
both controls accounts, thus, Dr Ac counts payable control, Cr Accounts Receivable control.

2
The Source of information for preparing the control accounts

The control accounts are prepared from total information provided by the various journals and cash book.

Accounts Receivable control

Information Source
Receipts Cashbook
Discounts received Cash book
Uncollectable accounts General journal
Sales return Sales return journal
Sales Sales journal
Dishonored cheques from customers General journal
Interest charged General journal
Set-off General journal

Accounts Payable control

Information Source
Payments (cash and bank) Cash book
Discount allowed Cashbook
Set-off General journal
Purchases return Purchases return journal
Purchases Purchases journal
Dishonoured cheques to suppliers General journal
Interest charged General journal

Cash Sales and Cash Purchases

It is important to remember that cash sales and cash purchases are not recorded in the control accounts because
these transactions do not normally or directly affect accounts payable or receivable. Therefore, all transactions
relation to cash customers and cash suppliers under normal circumstances are to be excluded.

3
Lecture Question

Kwayne West has provided you with the following information on 1st January 2008 for your professional assistance.

Balance on 1st January 2009

Accounts receivable ledger (Dr) $65,145
Accounts receivable ledger (Cr) $ 600

Accounts payable ledger (Dr) $ 950

Accounts payable ledger (Cr) $75,500

Transactions for the month of January 2009

Cash Purchases $27,600
Cash Sales $46,750
Contra entry (Set Off) $ 1,500
Refund to cash customers $ 2,680
Bad debt written off $ 2,300
Discounts allowed $ 2,750
Total payments to suppliers $95,000
Total receipt from customers $96,700
Discount received $ 3,500
Interest charged on overdue debtors accounts $ 2,800
Dishonoured Cheques: customers $ 2,670
Increase in the allowance for doubtful debts $ 1,100
Return Inwards $ 1,350
Bad Debt recovered $ 5,600
Interest charged by credit suppliers on overdue accounts $14,500
Return outwards $15,600

Balances at 31st January 2009

Accounts Receivable Control: Dr 96,065 Cr $9,300

Accounts Payable Control: Dr $8,050 Cr 64,700

Required:
a) Prepare the Accounts Receivable Control Ledger and Accounts Payable Control Ledger at the end of
January 2009

4
 Sales Ledger/Accounts Receivable Control Account

Balance brought down 65,145 Balance brought down 600

Credit Sales 69,000 Set off 1,500
Interest charges on overdue accounts 2,800 Bad debt written off 2,300
Dishonoured cheques 2,670 Discount allowed 2,750
Bad debt recovered 5,600 Receipts from debtors (96,700-46,750) 49,950
Return inwards 1,350
Balance carried down 9,300 Balance carried down 96,065
154,515 154,515
Balance brought down 96,065 Balance brought down 9,300

Purchases Ledger/Accounts Payable Control Account

Balance brought down 950 Balance brought down 75,500

Set off 1,500 Credit Purchases 55,600
Payment to suppliers (95,000-27,600) 67,400 Interest charged by suppliers 14,500
Discount received 3,500
Return outwards 15,600
Balance carried down 64,700 Balance carried down 8,050
153,650 153,650
Balance brought down 8,050 Balance brought down 64,700

5
TUTORIAL QUESTIONS

1. You are required to prepare a sales ledger control account from the following details for the month of
April 2000:

$
April 1 Sales Ledger balances 4 396

Totals for April:

Sales Journal 50456
Returns inwards journal 1 139
Cheques and cash received from customers 46 490
Discounts allowed 1 455
Bad debts Written off 99
Balances in sales ledger set off against credit
balances in purchases ledger 259

April 30 Sales ledger balances 5 410

2. The following information was extracted from the books of Western Traders Limited.

2001
January 1 Balances brought forward:

Debtors Dr $45 000 Cr $1200

Creditors Dr $3 900 Cr $25 000

Totals 31 December: $

Credit Sales 120 000

Cash Sales 70 000
Credit Purchases 95 000
Cash Purchases 40 000
Sales returns 5 000
Purchases returns 2 500
Discounts allowed 700
Discounts received 1 200
Bad debts 2 700
Refunds to cash customers 1 100
Refunds from suppliers 3 000
Payments to suppliers 39 000
Receipts from customers 65 000
Dishonored cheques from customers 7 000

December 31 balances:

Debtors Dr $? Cr $100
6
 Creditors Dr $900 Cr?

REQUIRED: Prepare the Debtors and Creditors Control accounts for the year ended 31 December 2001
to show the missing balances at 31 December.

3. You are required to prepare a purchases ledger control account from the following for the month of
June. The balance on the account is to be taken as the amount of creditors at 30 June.

2000 $
June 1 Purchases ledger balances 34 500

Totals for the month of June:

Purchases journal 257
Returns outward Journal 5 000
Cheques paid to suppliers 75 000
Discounts received from suppliers 2 130
Cash paid twice in error to a supplier now
Refunded 260
Balances in the Purchases ledger set off
against balances in the sales ledger 2 200

June 30 Purchases Ledger balances ?

4. The Trial balance of Papine Hardware and Supplies revealed a difference in the books. In order that the
error(s) could be located it was decided to prepare purchases and sales ledger control accounts.

From the following prepare the control accounts and show where an error may have been made:

2002 $

January 1 Purchases Ledger Balances 11 874

Sales Ledger Balances 19 744

Total for the year 2002:

Purchases Journal 154 562
Sales Journal 199 662
Returns Outwards Journal 2 648
Returns Inwards Journal 4 556
Cheques paid to suppliers 146 100
Petty cash paid to suppliers 78
Cheques and cash received from customers 185 960
Discounts allowed 5 830
Discounts received 2 134
Bad debts written off 396
Customers cheques dishonoured 30
Balances on the sales ledger set off against
balances in purchases ledger 1 036

7
 At December 31 the list of balances from the sales ledger shows a total of $21 658 and that from the
purchases ledger a total of $14 530.

5. Andrew Pryce is a sole trader. The following figures have been extracted from his books for the month
of April 2003.

$
Cash sales 2560
Cheques received from debtors 1520
Discounts allowed debtors 30
Returns inwards(credit customers) 75
Debtors 1 April 2003 1120
Debtors 30 April 2003 1485
Purchases on credit 3210
Purchases for cash 200
Stock 1 April 2003 1180
Stock 30 April 2003 1290

Required:
a. Prepare a Debtors Total Account or a control account to show clearly the amount of credit sales
for April 2003.
b. Calculate Pryce’s gross profit for the month
c. Explain briefly the purpose of preparing a Control Account.

6. The financial year of The Consumer Trading Company ended on 30 November 2003.You have been
asked to prepare a Total Debtors Account and a Total Creditors Account in order to produce end of year
figures for debtors and creditors for the draft final accounts.

You are able to obtain the following information for the financial year from the books of original entry:

$
Sales – cash 344 890
- credit 268 187
Purchases – cash 14 440
- Credit 496 600
Total receipts from customers 600 570
Total payments to suppliers 503 970
Discounts allowed to credit customers 5 520
Discounts received from credit suppliers 3 510
Refunds to cash customers 5070
Balances in sales ledger set off against
balances in purchases ledger 70
Bad debts 780
Increase in provision for bad debts 90
Credit notes issued to credit customers 4 140
Credit notes issued to credit suppliers 1480

According to the audited financial statements for the previous year debtors and creditors as at
December 2002 were $26 555 and $43 450 respectively.

8
REQIURED:

Draw up the relevant Total Accounts entering the end of year totals for debtors and creditors.