Presentation on theme: "1 Control accounts. 2 Can you match these accounts with the ledger in which they would be found? Sales account Purchases account An account for David."— Presentation transcript:
2 Can you match these accounts with the ledger in which they would be found? Sales account Purchases account An account for David & Sons, a credit customer An account for Fred Jones, a credit supplier Sales returns account Cash sales account Discount received account Bank loan account Bad debts account PURCHASE LEDGER SALES LEDGER GENERAL LEDGER
3 What are control accounts? They are copies in total of all the entries made in the individual sales or purchase ledger accounts. There are separate control accounts for the purchase and sales ledgers. They are called the sales ledger control account and the purchase ledger control account. A sales invoice is debited in an individual sales ledger account. Money received from a credit customer credited to an individual sales ledger account. The total of all sales invoices is debited to the sales ledger control account. The total of all money received from credit customers is credited to the sales ledger control account.
4 T T T T T T T T T T T T T T T T T TT T T T T T T T T T T T T T T T T T T T General ledger Sales ledger Purchase ledger Petty cash book Cash book
5 T T T T T T T T T T T T T T T T T TT T T T T T T T T T T T T T T T T T T T General ledger Sales ledger Purchase ledger Petty cash book Cash book T T
6 Sales day book DateDetailsInvoice no.FolioNetVATTotal Totals Sales a/c credit VAT a/c credit Sales ledger control a/c debit The total amount of each invoice is posted to the customer’s a/c as a debit
7 Sales Returns day book DateDetailsCredit No.FolioNetVATTotal Totals Debit Sales Returns a/c Debit VAT a/c The total amount of each credit note is posted to the customer’s a/c as a credit Sales ledger control a/c Credit
8 Cash receipts book DateDetailsFolioDisc.CashBankSales ledger Inter est Misc.Rent rec’d VATCash sales 99.00 Sales ledger control a/c Credit 6.00 G. Loo L002 A. Box B010 99.00 50.00 T.Gether 38.5032.77 3.00 9.0050.00137.50149.0038.50 5.73 2011 Nov 25 Nov 26 Nov 27 Sales ledger control a/c Credit
9 Why bother? There are usually many accounts and postings in the ledgers. It can be difficult to find mistakes because there are so many entries. The ledger accounts are either in the purchase ledger, the sales ledger or the general ledger. Usually most of the accounts are in the sales and purchase ledgers (the personal ledgers). If we can pin an error down to one of these ledgers it will mean we will have less work to do to find it. A control account helps by providing an overall balance which can be compared with a list of balances of all the individual accounts in that ledger. If there is a difference we will know that it is within that ledger and this means we do not have to check the accounts in the other ledgers.
10 How do they fit into the double entry system? If there were no control accounts, each account in the sales and purchase ledgers would have a separate entry in the trial balance. However, if we have sales and purchase ledger control accounts, we can replace all the individual personal accounts in the trial balance with one control account for the purchase ledger and one control account for the sales ledger. But if we debit a sales invoice to a sales ledger account AND to the sales ledger control account where is the double entry completed? The answer is that it isn’t. We can regard all the purchase ledger and sales ledger accounts as memorandum accounts with the double entries only being made in the control accounts and other accounts in the general ledger.
11 What are the advantages of using control accounts? Apart from helping you to find errors they are useful because: You can ascertain the total amounts due from debtors and creditors without having to add them all up. This means that you can prepare final accounts quickly. You can delegate responsibility for maintaining the personal ledgers. Provided the control accounts are prepared by someone other than the persons maintaining the ledgers, their preparation can be used as a check on the honesty of the staff.
12 What are the disadvantages of using control accounts? Some types of error will not be detected. Which ones?
13 What happens when a customer is also a supplier? Sometimes we will buy goods from a customer. So we will be both buying from and selling to the same company. The company will have an account in the sales ledger and an account in the purchase ledger. What sometimes then happens is that the customer offsets invoices for supplies made to the company against invoices for supplies received and only pays over the net amount. How do we account for this? We make a transfer between the sales and purchase ledger accounts. Usually the entry is to debit the purchase ledger account and credit the sales ledger account. The transfer is called a contra. The total value of contras must also be shown in the purchase and sales ledger control accounts.