2 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.
3 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.
4 Sales ledger control account Sales ledger control account = Total debtors account
5 Sales Ledger Control Account $Dec 1 Balance b/f a31 Sales b31 Cash / Bank c31 Bank d31 Bills receivable e31 Interest received f31 Bad debts recovered g31 Balance c/f hx$Dec 1 Balance b/f i31 Returns Inwards j31 Cash / Bank k31 Bills receivable l31 Set-off m31 Discount allowed n31 Bad debts o31 Balance c/f p
6 ItemsSourcesa. Total of opening debit balance of debtorsSales ledgerb. Total credit salesSales journalc.Cash refund to a customer who has overpaid his accountCash bookd. Dishonoured chequese. Dishonoured billsJournalf. Interest charged by us on overdue debtsg. Bad debts recoveredh. Total of closing credit balances of debtors
7 i. Total of opening credit balances of debtors Sales ledgerj. Returns inwardsReturns inwards journalk. Cash or cheques received from debtorsCash bookl. Bills receivable from debtorsJournalm. Balances in sales ledger set off against credit balances in purchases ledgern. Discounts allowedo. Bad debts written off (not provision for bad debts)p. Total of closing debit balances of debtors
8 Purchases ledger control account Purchases ledger control account = Total creditors account
9 Purchases Ledger Control Account $Dec 1 Balance b/f a31 Returns Outward b31 Cash / Bank c31 Bills Payable d31 Set-off e31 Discounts Received f31 Balance c/f hxDec 1 Balance b/f h31 Purchases i31 Cash / Bank j31 Bank k31 Bills Payable l31 Interest Expenses m31 Balance c/f n
10 ItemsSourcesa. Total of opening debit balances of creditorsPurchases ledgerb. Returns outwardsReturns outwards journalc. Cash or cheques paid to creditorsCash bookd. Bills payable to creditorsJournale. Balances in purchases ledger set off against debit balances in sales ledgerf. Discounts receivedg. Total of closing credit balances of creditors
11 h. Total of opening credit balances of creditors Purchases ledgeri. Total credit purchasePurchases journalj. Cash refund from suppliers who have overcharged usCash bookk. Dishonoured cheques returned from creditorsl. Dishonoured bills returned from creditorsJournalm. Interest payable on overdue debtsn. Total of closing debit balances of creditors
12 Types of Minority balances Temporary debit balances in total creditors accountTemporary credit balances in total debtors account
13 Reasons for the occurrence of minority balances Returns after settlement of the accountsClaims for shortages of goods or for invoices overcharged after settlement the accounts
14 Minority balances on the balance sheet Debtors (debit balance of sales ledger + debit balance of purchases ledger) X八Less: provision for bad debt (debit balance ofsales ledger x percentage) XXCreditors (credit balances of purchasesledger + credit balances of salesledger) X
15 Contra itemIf the same firm is both a supplier (creditor) and a customer (debtor), inter-indebtedness is set-offContra 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
16 The following information was extracted from the books of Lewell Ltd The following information was extracted from the books of Lewell Ltd. On 1 March 1996:Purchases ledger control account ,500Sales ledger control account ,300During the month:Cash sales ,000Credit sales ,000Cash purchases ,800Credit purchases ,000
17 Discounts received from suppliers 5,400 Discounts allowed to customers ,200Returns InwardsCash received from customers ,000Cash payment to suppliers ,000Returns OutwardsBad debts written offBills receivable from customers ,000Dishonoured cheques returned to customersBalances in sales ledger set off against creditBalances in purchases ledger ,600
19 Total creditors account 31/3 discount received 540031/3 bal b/fReturns outwards 70031/3 purchasesSet-offCashBal c/fTotal debtor accounts31/3 discount allowed31/3 Bal b/fReturns inwardsSalesBad debtsBankCashBill receivableSet-offBal c/f
20 Comparing Sectional Balancing and Self-balancing system
21 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.
22 Sectional Balancing System In small firms, debtors and creditors accounts are regarded part of the double-entry systemThe control accounts should be kept only for memorandum purposes
23 Sectional Balancing System OriginaldocumentsSales/PurchasesJournalsSales Ledger control a/cPurchases ledger control a/cGeneral ledgerSales and purchases a/cSales/purchases ledgersDebtors/CreditorsTrial BalanceFor memorandumpurposeDouble-entry systemNote: postingextracting
24 Self-Balancing System OriginaldocumentsSales/PurchasesJournalsSales/purchases ledgersDebtors/CreditorsGeneral ledgerSales and purchases a/cSales Ledger control a/cPurchases ledger control a/cTrial BalanceFor memorandumpurposeDouble-entry systemNote: postingextracting
27 Self-balancing System Sectional Balancing System TransactionsSelf-balancing SystemSectional Balancing SystemA Credit salesDr Sales Ledger ControlCr SalesDr DebtorsB Receipts from debtorsDr Cash / BankCr Sales Ledger ControlDr Cash/BankCr DebtorsC Return inwardsDr Return InwardsDr Return inwardsD Discount allowedDr Discount Allowed
28 Self-balancing System Sectional Balancing System TransactionsSelf-balancing SystemSectional Balancing SystemE Bad debts written offDr Bad debtsCr Sales Ledger ControlCr DebtorsF Bad debt recoveredDr Sales Ledger ControlCr Bad debts recoveredDr Cash / BankDr Cash/Bank
32 Self-balancing System Sectional Balancing System ErrorsSelf-balancing SystemSectional Balancing Systema. Credit sales invoice omittedDr Sales ledger ControlCr Sales(Increase the debtors ledger listing.)Dr Debtors(Debit the sales ledger control account.)b. Sales omitted in journalDr Sales Ledger Control
33 c. Sales of $120 incorrectly entered in sales journal as $100 Dr sales Ledger ControlCr Sales(increase the debtors ledger listing.)Dr Debtors(Debit the sales ledger control account.)d. Sales journal undercast.Dr Sales ledger Control(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 Suspensee. Sales of $120 incorrectly entered as $100 in sales account
34 f. Sales understated in sales ledger control account Dr Sales Ledger ControlCr SuspenseNo entry(Debit the sales ledger control account.)g. Sales of $120 incorrectly debited to debtor account as $100.(Increase the debtors ledger listing.)Dr Debtorsh. Balance of sales has been incorrectly put to the wrong side of the trial balance.Dr Suspensei. Balance of debtors has been incorrectly put to the wrong side of the trial balance.
35 j. Balance of sales ledger control account has been incorrectly put to the wrong side of the trial balance.Cr. SuspenseNo entry
37 John Chan The Journal Dr Cr Dec 31 Sales Ledger Control 530 Sales 530 $ $Dec 31 Sales Ledger ControlSales31 Suspense ,050Discount received ,05031 Returns Outwards 3,200Purchase Ledger Control ,20031 Purchases Ledger ControlSales Ledger Control31 Bank ,000Sales Ledger Control ,00031 Bank ,250Suspense ,250
38 Sales Ledger Control Account Suspense Account$Balance b/f ,200Discounts received ,0502,250Bank ,250_____Sales Ledger Control Account$Balance b/f ,000SalesBalance c/d ,95033,480Balance b/d ,360Bank ,000Purchase Ledger Control-set offBalance c/d ,360Balance b/d ,950
40 Statement showing the Revised Balance of Purchases Ledger Listing $Original Balance ,135Less Balance overstatedRevised Balance ,500Statement showing the Revised Net Profit for the year ended 31 Dec 1996$ $Net Profit as per accounts ,200Add Sales undercastDiscounts Received undercast , ,58012,780Less Returns Outwards overcast ,200Revised Net Profit ,580
41 John Chan Balance Sheet as at 31 Dec 1996 Fixed Asset 12,000 $ $Fixed Asset ,000Less Prov. For Depn ,0007,000Current AssetsStock ,000Debtors ( ) ,780Bank ( ) 10, ,03067,030$CapitalBalance as at 1 Jan ,000Add Net Profit ,58047,580Current LiabilitiesCreditors( ) ,450______