Control Accounts
Now days, businesses do a lot more transactions in credit and thus there is a long list of debtors and
creditors. Since the bulk of entries are made in the accounts of debtors and creditors, these two
classes of accounts are taken out of the General Ledger and put in a subsidiary ledger. Subsidiary
ledgers include Sales Ledger which contains all debtors accounts and Purchases Ledger which
contains all creditors’ accounts. This is where control account comes in. Control account is a
summary of all the accounts in the subsidiary ledgers.
The summary of all accounts in the Sales ledger make up the Debtors control account and the
summary of all accounts in the Purchase Ledger is known as the Creditors control account.
Debtor Control Accounts
This account, also known as the Sales Ledger Control Account, contains all detail of the trade
receivables’ accounts in the Sales Ledger, but in totals.
The total sales shown in the Sales ledger Control Account is equal to the sum total of the individual
sales posted to the trade receivables’ accounts in the Sales Ledger. The sales total is debited to the
Sales ledger Control Account and credited to the Sales Account, thus maintaining the double entry
principle in the General Ledger. The same procedure is applied in obtaining the other totals to form
the Sales ledger Control Account.
Debtor Control Accounts
Rs RS
Balance b/f (majority) xxx Balance b/f (minority) Xxx
Credit Sales (total of sales journal) xxx Sales returns (total of sales returns Xxx
journal)
Refunds to credit customers (from xxx Cash/cheques received from credit Xxx
cash book) customers (from cash book)
Dishonoured cheques (from cash xxx Discount allowed (total of discount Xxx
book) column from cash book)
Interest charged (from journal) xxx Bad Debts (from journal) Xxx
Bad Debts recovered (from journal) xxx Cash from bad debts recovered Xxx
(from cash book)
Balance c/f (total of credit balances in xxx Set off – purchase ledger (from Xxx
sales ledger) journal)
Balances c/f (total of debit balances Xxx
in sales ledger)
xxx Xxx
Creditor Ledger Control Account
The Creditor Ledger Control Account, also called the Purchases Ledger Control Account or Creditors
Account, represents all the creditors in the Purchases Ledger. The construction of the Purchases
ledger control Account follows the same principle as the Sales ledger Control Account, the totals for
the entries in the Creditors Control Account are obtained from books of prime entry.
Creditor Ledger Control Account
RS RS
Balance b/f (minority) xxx Balances b/f (majority) xxx
Purchase returns (total of purchase xxx Credit purchases (total of purchases xxx
returns journal) journal
Cash / cheques paid to suppliers xxx Refunds from suppliers (from cash xxx
(from cash book) book)
Discount received (total of discount xxx Interest charged by suppliers (from xxx
column from cash book) journal)
Set off – sales ledger (from journal) xxx Balance c/f (total of debit balances xxx
in purchase ledger)
Balance c/f (total of credit balances xxx
in purchase ledger)
xxx xxx
Transfers or Contras:
Sometimes a customer of a firm also happens to be a supplier, i.e. the same person is a trade
receivables (debtor) for the goods he has bought as well as a trade payable (creditor) for the goods
he has supplied. His accounts can be settled by a transfer or contra. When transfer is made it will
always be credited in the Sales Ledger Control Account and Debited in the Purchases Ledger Control
Account.
Minority Balance in control Accounts:
Normally, debtors accounts have debit balances and creditors accounts contain credit balances. But
the Debtors control Account & the Creditor Control Account will have both debit and credit balances
brought down. There may instances when debtors might return some goods after their accounts have
been settled and this may lead them to have a credit balance in debtor control account. Same
procedure will take place for Creditors Control Account.
Illustration 1
prepare the debtors and creditors ledger control account for the following:
Balances:
Debtors (1/1/18) 150,000
Creditors (1/1/18) 45,000
Bad debt 2,200
Discount Received 2,500
Cash Received from debtors 115,000
Cheque Receipt from debtors 5,000
Set off 1,200
Discount Allowed 1,150
Credit Sales 25,000
Credit Purchases 12,000
Cash payment to creditors 18,000
Cheque payment to creditors 11,200
Understated Credit sales 1,500
Overstated cash receipt from debtors 2,000
Return Inward 1,300
Return Outwards 1,600
Overstated Cheque payment to creditors 1,000
Control accounts are used by accountants like suspense accounts, as a double check mechanism. They
ensure that they have handled the double entries involved in credit transactions properly. That means,
• The closing balances on the sales ledger control accounts should be equal to the total of the
closing balances on the individual debtor accounts in the sales ledger.
• The closing balances on the purchases ledger control accounts should be equal to the total of
the closing balances on the individual creditor accounts in the purchases ledger.
Reconciliation of Control Accounts with Ledgers:
When there is a difference between the balance on a Control account and the total of the balances
in the ledger it controls, the cause or causes must be found and the necessary corrections made.
This is known as reconciling the Control accounts.
Illustration 2
The balance of debtor control account as at 31/03/2018 is as follows.
Debit balance – Rs.10000
Credit Balance – Rs.100
The total of debtor list as at 31/03/2018 is Rs.720.
Reasons for the difference are as follows.
• Sales Daybook over totteld (added up too much) by Rs1200
• A Debtors receipt of Rs.800 was entered as Rs8000 in the Personal account
• Goods returned Rs.750 were entered in the Sales Day Book as RS.850 and debit as
RS.70 in the Personal a/s
Do the reconciliation.
Illustration 3
The following information has been extracted from Delma’s books at 31 October 2018
Total of sales ledger balances (debit) 17 640
(credit) 110
Balance on Sales Ledger Control account (debit) 18 710
The following errors have been discovered.
1. A sales invoice for Rs.100 has been omitted from the sales journal.
2. A credit balance of Rs.35 in the sales ledger has been extracted as a debit balance in the list
of sales ledger balances.
3. The sales journal total for December has been overstated by Rs.1000.
4. A balance of Rs.250 on a customer’s account in the sales ledger has been set against the
amount owing to him in the purchase ledger but no entries have been made for this in the
Sales and Purchase Ledger Control accounts.
Required:
Calculate the following at 31 October 2018.
a. The revised sales ledger balances.
b. The amended sales ledger control account.
Illustration 4
The information below was extracted from the records of Mermaid Traders for May 2018.
Creditors control balance on 30 April 2018 was 42,750.
Transactions during May 2014 (excluding the additional information below):
Purchases of trading inventory on credit 110,000
Cash purchases of trading inventory 74,400
Cheques issued to creditors in payment of accounts 105,150
Discounts received from creditors for prompt payment 1,875
Trading inventory returned to creditors 1,260
Furniture purchased on account 2,400
Interest charged by creditor on overdue account 45
Creditors List on May 2018:
Redco Manufacturers 6,900 (CR)
Arrow Wholesalers 10,530 (CR)
Starlite Traders 28,200 (CR)
Winston Limited 5,100 (CR)
Rosy Stores 450 (DR)
Additional Information:
1. The balance in the account of Rosy Stores must be transferred to their account in the Debtors
Ledger.
2. A cheque payment to Redco Manufactures 1350 was not recorded in the Cash payments journal
and the creditor journal.
3. A cheque for 1,270 to Starlite Traders was correctly recorded in the Cash payments journal but
posted to their account as 1,000 in the Creditors Ledger.
4. A debit note sent to Arrow Wholesalers for trading goods returned was not recorded in the
Purchases returns journal, 1,050.
5. A cheque to Winston Limited for 3,000 was recorded in the Cash Payments Journal but not
posted to the account in the creditor's ledger.
Required:
1. Prepare the correct creditors control account for May 2018. Balance the account.
2. Prepare the corrected Creditor's List as at 31 May 2018.
