Chp 14
Control Accounts
Page No. 145
Control Accounts
What is meant by Control ?
1. Controls are functions / processes that helps to keep a check on errors
or deviations from standards.
2. Similary, Control accounts also helps to detect any errors committed in
the double entry records.
3. Businesses usually maintain their Ledgers divided into these 3
categories.
Ledgers
Sales Purchase General / Nominal
Debtors Creditors All other accounts
Sales ledger Purchase ledger No error in the
control a/c control a/c previous 2, then the
error is here
Sales Ledger Control A/C
It is prepared to check the arithmetical accuracy of
the transactions recorded in the sales ledger
(debtors a/c)
Purchase Ledger Control A/C
It is prepared to check the arithmetical accuracy of
the transactions recorded in the purchase ledger
(creditors a/c)
Information for Control A/C
Source of transactions
BOOKS OF PRIME ENTRY
1) All errors comitted in the accounting records including the
errors committed in the day books & in posting transactions
to the ledger will be indicated by the Control A/C
2) It is easier to extract info from the books of prime entries as in
most cases totals of transactions for the period are available
as a part of the records
Working of Control A/c
Books of
Ledger A/C
Prime entry
Sales journal
Posting Debtors’ A/C
Creditors A/c
Purchase journal
Others
Sales return journal
Purchase return journal
Cash book
Journal
Closing
balances as
Matching of balances
per control a/c
Sales ledger Control A/c calculated as per
control a/c & balance
Purchase ledger Control A/c extracted from ledgers
ensures accuracy
Format of Sales ledger control a/c
Dr Details $ Details $ Cr
Balance b/d xx Cash/Bank xx
Credit Sales xx Discount allowed xx
Dishonored cheque xx Bad debts xx
Interest xx Sales return xx
Balance c/d xx Balance c/d Xx
xxx xxx
Increase in the Decrease in the
value receivable value receivable
Format of Purchase ledger control a/c
Dr Details $ Details $ Cr
Cash/Bank xx Balance b/d xx
Discount received xx Credit purchases xx
Purchase returns xx Interest xx
Balance c/d xx Balance c/d Xx
xxx xxx
Decrease in the Increase in the
value payable value payable
Activity 1 & 2
Page No. 151
Solution to Activity 1
Byit Ltd
Purchase ledger control account
Date Details $ Date Details $
01-Mar Balance b/d 16 01-Mar Balance b/d 10000
31-Mar Purchase returns 824 31-Mar Purchase journal 33700
31-Mar Bank 27500 31-Mar Balance c/d 156
31-Mar Discount received 1300
31-Mar Balance c/d 14216
43856 43856
Solution to Activity 2
Soldit Ltd
Sales ledger control account
Date Details $ Date Details $
01-May Balance b/d 27640 01-May Balance b/d 545
31-May Sales journal 109650 31-May Sales return 2220
31-May Bad debts recovered 490 31-May Bank 98770
31-May Balance c/d 800 31-May Discount allowed 3150
31-May Bank (BD recovered) 490
31-May Purchase ledger contra 2624
31-May Balance c/d 30781
138580 138580
Reconciliation
Revised sale/purchase ledger
Details Debit Credit
Revised profit for the period ended
Details Increase Decrease $
Read more about it on Page No.152
Activity 3
Page No. 155
Control Accounts
Advantages: Disadvantages:
● Speedy calculation of summarized trade ● Can not detect all types of errors.
payables and trade receivables. ● Can not act as a deterrent against fraud
● They help in locating the errors. unless internal checks can be carried out.
● They reduce the voluminous information to ● Do not provide the details of the
be checked in case the trial balance does not transactions, but it only provides a summary
match and saves the time in locating errors. of each type of transaction.
● They check the arithmetical accuracy of the ● Can be implemented only in the businesses
sales ledger and the purchases ledger. where the double entry system has been
● They prevents the fraud in the business with followed. However, the businesses which
separation of duties. As it is maintained by follow single entry system use control
the supervisors or managers, it adds another accounts to find the missing information.
level of security. ● Incorporation of these accounts into the
● They help in finding the missing figures and double-entry system is useful only when
in the preparation of financial statements there are a huge number of transactions in
where accounts are kept in the single entry the business and when business maintains
system. several ledgers in the accounting books. For
● These accounts checks and assess the smaller business organizations preparation
efficiency of the staff. of these accounts is not required.
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This PPT is for educational purposes only
Answers to activities, practice exercises and exam practice questions: Chapter 14
14 Control accounts
Activities
Activity 1
Byit Limited
Purchase ledger control account
2016 $ 2016 $
Mar 1 Balance b/d 16 Mar 1 Balance b/d 10 000
Mar 31 Purchases returns 824 Mar 31 Purchases journal 33 700
Bank 27 500 Balance c/d 156
Discounts received 1 300
Balance c/d 14 216
43 856 43 856
Apr 1 Balance b/d 156 Apr 1 Balance b/d 14 216
Activity 2
Soldit Limited
Sales ledger control account
2016 $ 2016 $
May 1 Balance b/d 27 640 Balance b/d 545
May 31 Sales journal 109 650 Sales returns 2 220
Irrecoverable debt recovered 490 Bank 98 770
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Balance c/d 800 Discounts allowed 3 150
Bank – irrecoverable 490
debt recovered
Purchase ledger 2 624
contra
Balance c/d 30 781
138 580 138 580
Jun 1 Balance b/d 30 781 Jun 1 Balance b/d 800
Activity 3
a
Purchase ledger Sales ledger
balances balances
Debit Credit Debit Credit
$ $ $ $
Before amendment 64 7 217 Before amendment 23 425 390
Deduct invoice (100) Correction of invoice
entered twice $326 entered as $362 (36) –
Debit balance Corrected balances 23 389 390
incorrectly listed as
credit balance 50 (50)
Corrected balances 114 7 067
Cambridge International AS and A Level Accounting
b Corrected purchase ledger control
2015 $ 2015 $
Dec 31 Cancellation of invoice 100 Dec 31 Balance b/d 7 847
Discounts received 84 Balance c/d 114
Sales ledger contra – 710
Trazom
Balance c/d 7 067
7 961 7 961
2016 2016
Jan 1 Balance b/d 114 Jan 1 Balance b/d 7 067
Corrected sales ledger control
2015 $ 2015 $
Dec 31 Balance b/d 22 909 Dec 31
Sales journal 800 Purchase ledger 710
understatement contra – Trazom
Balance c/d 390 Balance c/d 23 389
24 099 24 099
2016 2016
Jan 1 Balance b/d 23 389 Jan 1 Balance b/d 390
c Amended profit for the year ended 31 December 2015
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$
Profit per draft income statement 31 000
Add:
Reduction in purchases 100
Discounts received omitted 84
Increase in sales 800
Amended profit for the year 31 984
d Statement of financial position extract at 31 December 2015
$ $
Trade receivables
Sales ledger 23 389
Purchase ledger 114 23 503
Trade payables
Purchase ledger 7 067
Sales ledger 390 7 457
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Answers to activities, practice exercises and exam practice questions: Chapter 14
Practice exercises
1 Peter
Sales ledger control account
$ $
Mar 1 Balance b/d 55 650 Mar 31 Bank 36 900
Mar 31 Sales 47 700 Irrecoverable debts 2 250
Bank 1 920 Discounts allowed 930
Returns inwards 580
Purchase ledger control 810
Balance c/d 63 800
105 270 105 270
Apr 1 Balance b/d 63 800
Peter
Purchase ledger control account
$ $
Mar 31 Bank 24 300 Mar 1 Balance b/d 34 020
Discounts received 600 Mar 31 Purchases 21 840
Returns outwards 330
Sales ledger control 810
Balance c/d 29 820
55 860 55 860
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Apr 1 Balance b/d 29 820
2 a Sellit
Sales ledger control account
$ $
Dec 31 Balance b/d 17 584 Dec 31 P. Ford 900
Discounts allowed 210 Sales 578
P. Williams 180 Balance c/d 17 096
Sales 600
18 574 18 574
Dec 31 Balance b/d 17 096
b Calculation of sales ledger balances before corrections
$
Corrected balance per sales ledger control account 17 096
Add Minus
$ $
Adjustment 2 900
Adjustment 3 (180)
Adjustment 5 578
Adjustment 6 450
1 928 (180) 1 748
Uncorrected balance of sales ledger accounts 18 844
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Cambridge International AS and A Level Accounting
Proof
Sales ledger control account Sales ledger balances
$ $
Balances from above 17 584 18 844
Adjustment 1 210
Adjustment 2 (900) (900)
Adjustment 3 180 180
Adjustment 4 600
Adjustment 6 (450)
17 674 17 674
Note:
The goods treated as a sale to Will Dither will be in both balances at the time they are
calculated.
c
Journal entries
Account Debit Credit
$ $
P. Ford 900
B. Ford 900
Receipt from customer posted to wrong account
Note: the control accounts do not require correction
54 P. Williams 180
Sales 180
Correction of sales invoice recorded in error
Note: the sales ledger personal and control accounts and the
revenue account all require correction
Sales 578
Will Dither 578
Correction of goods on sale or return treated as sale in error
Note: the sales ledger personal and control accounts and
the revenue account all require correction. In addition, the
goods held by Dither will have to be included in the year end
inventory
W. Yeo 450
Correction of sales invoice for $3160 recorded as $3600 in error
Note: the only error was in the personal account
3 a There may be a credit balance on the sales ledger control account because of:
• an overpayment by a customer
• a payment in advance by a customer.
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Answers to activities, practice exercises and exam practice questions: Chapter 14
b Julie
Corrected sales ledger control account
2016 $ 2016 $
May 31 Balance b/d 18 640 May 31 Purchase ledger control 650
Irrecoverable debts 400
Cash sales 1 760 Balance c/d 20 586
Balance c/d 436
21 236 21 236
June 1 Balance b/d 20 586 June 1 Balance b/d 436
Exam practice questions
Multiple-choice questions
1 B
2 C
3 C
Structured questions
1 a Two advantages to a business of maintaining sales and purchase ledger control accounts:
• provides quick totals of trade receivables and payables
• helps to detect errors in the accounts.
b Haeun Joo
Purchase ledger control account
55
2016 $ 2015 $
Apr 30 Bank 1 118 970 May 1 Balance b/d 64 680
Discounts received 47 100 2016
Returns outwards 18 600 Apr 30 Purchases 1 236 210
Sales ledger control 7 815
Balance c/d 108 405
1 300 890 1 300 890
May 1 Balance b/d 108 405
Haeun Joo
c Amended purchase ledger control account
$ $
Contra with sales ledger 1 275 Balance from (a) 108 405
Bank 2 175 Discounts received 1 500
Balance c/d 109 515 Purchases 3 060
112 965 112 965
Balance b/d 109 515
55
Cambridge International AS and A Level Accounting
d Statement to reconcile balances
Add Minus Purchase
ledger balances
$ $ $
Starting balances at 30 April 2016 101 490
Adjustment 2 3 060 3 060
Adjustment 3 150 150
Adjustment 6 4 815 4 815
Amended balance on purchase ledger 109 515
control account at 30 April 2016
2 Three reasons for keeping a control account are (any two):
• provides a quick total for year-end financial statements
• helps identify possible fraud
• helps to detect errors in the accounts.
3 a It is sometimes the case where the customer of a business is also a supplier to the
business. They will, therefore, have an account in both the sales and purchase ledger.
In order to cut down on paperwork and the need to send cheques to each other, the
balance on the sales ledger will be offest against the balance in the purchase ledger.
This means that only one party needs to send a cheque to the other. Whatever action is
taken in the individual accounts in the sales and purchase ledgers, the same thing has
to be done in the respective control accounts in the nominal ledger.
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b Dinh Truong
Purchase ledger control account
2016 $ 2015 $
Apr 30 Bank 745 980 May 1 Balance b/d 43 120
Discounts received 31 400 2016
Purchases returns 12 400 Apr 30 Purchases 824 140
Sales ledger control 5 210
Balance c/d 72 270
867 260 867 260
May 1 Balance b/d 72 270
c
Amended purchase ledger control account
2016 $ 2016 $
May 1 Balance b/d 72 270
Sales ledger 850 Discounts 1 000
control received
Bank 1 450 Purchases 2 040
Revised balance c/d 73 010
75 310 75 310
May 1 Balance b/d 73 010
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Answers to activities, practice exercises and exam practice questions: Chapter 14
d Purchase ledger Purchase
control account ledger balances
$ $
Starting balances (purchase ledger control 72 270 67 660
account was calculated in part a, purchase ledger
balances is the balancing figure)
Adjustment 1 1 000
Adjustment 2 2 040 2 040
Adjustment 3 – 100
Adjustment 4 (850) –
Adjustment 5 (1 450) –
Adjustment 6 3 210
73 010 73 010
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