CONTROL ACCOUNTS

A sales ledger is used to record credit customers account (trade receivables) and a purchases ledger is used to
record credit suppliers account (trade payables). Control accounts are prepared from books of prime entry to
check the arithmetical accuracy of the sales ledger and purchases ledger. Control accounts may also be used to:

• Act as a deterrent against fraud.

• Locate errors made in the sales ledger and purchases ledger quickly and easily.
• Calculate total trade receivables and total trade payables quickly.
• Help in the preparation of trial balance.
• Calculate credit sales and credit purchases in case of incomplete records

There are two types of control accounts:

• Sales ledger control account (total trade receivables control account)

• Purchases ledger control account (total trade payables control account)

Contra entries

A credit customer may also be a credit supplier in a business. Therefore we may set off the lowest amount between
the customer and the supplier. The double entry to record the contra entry between the purchases ledger and the
sales ledger is as follows:

Debit Purchases ledger control account

Credit Sales ledger control account

Credit balance in sales ledger

The main reasons for the sales ledger control account to have a credit balance are:

• Overpayment made by the customer.

• Advanced payment or deposit made by customer.
• Return inwards made by customer after effecting payments.

Debit balance in purchases ledger

The main reasons for a purchases ledger account to have a credit balance are:

• Overpayment made by the business (overpayment made to supplier).

• Advanced payment or deposit made by the business
• Return outwards made to the supplier after effecting payments.

Items not recorded in control account:

• Cash sales and cash purchases

• Provision for doubtful debts
• Return inwards made from cash sales
 • Return outwards made from cash purchases

DR Sales ledger control account / Total trade receivables control account CR

Jan 1 Balance b/f (major) *** Jan 1 Balance b/f (minor) ***

Jan 31 Credit sales *** Jan 31 Return inwards ***

Dishonoured cheque *** Bad debts ***

Interest charged on overdue *** Discount allowed ***

accounts

Refund to customers *** Cash / cheques received ***

Balance c/d *** Contra / set off ***

Balance c/d ***

*** ***

Feb 1 Balance b/d *** Feb 1 Balance b/d ***

(CR balance in sales ledger)

DR Purchases ledger control account /Total trade payables control account CR

Jan 1 Balance b/f (minor) *** Jan 1 Balance b/f (major) ***

Jan 31 Return Outwards *** Jan 31 Credit purchases ***

Payments to suppliers *** Refund from suppliers ***

Discount received *** Interest charged by suppliers ***

Contra / Set off *** Balance c/d ***

Balance c/d ***

*** ***

Feb 1 Balance b/d *** Feb 1 Balance b/d ***

(DR balance in purchases ledger)

Worked Example

Prepare a sales ledger control account and purchases ledger control account from the following information
for the month of January:

1-Jan Sales ledger balance 12 750

Purchases ledger balance 8 845

31-Jan Credit sales 35 900

Credit purchases 24 555

Return inwards 1 200

Return outwards 1 300

Discount allowed 570

Discount received 490

Bad debts 1 110

Dishonoured cheque 2 60

Interest charged on overdue accounts 450

Refund to customers 240

Contra entry / Set off 350

Receipts from customers 31 200

Payment to suppliers 21 435

Debit balances in purchases ledger 140

Credit balances in sales ledger 150

DR Sales ledger control account CR

$ $

Jan 1 Balance b/f (major) 12 750 Jan 1 Balance b/f (minor) ***

Jan 31 Credit sales 35 900 Jan 31 Return inwards 1 200

Dishonoured cheque 260 Bad debts 1 110

Interest on overdue accounts 450 Discount allowed 570

Refund to customers 240 Cash/ cheques received 31 200

Balance c/d 150 Contra/ set off 350

Balance c/d 15 320

49 750 49 750

Feb 1 Balance b/d 15 320 Feb 1 Balance b/d 150

(CR balance in sales ledger)

DR Purchases ledger control account CR

$ $

Jan 1 Balance b/f (minor) *** Jan 1 Balance b/f (major) 8 845

Jan 31 Return Outwards 1 300 Jan 31 Credit purchases 24 555

Payments to suppliers 21 435 Balance c/d 140

Discount received 490

Contra / Set off 350

Balance c/d 9 965

33 540 33 540

Feb 1 Balance b/d 140 Feb 1 Balance b/d 9 965

(DR balance in purchases ledger)

Q1 Prepare a sales ledger control account and purchases ledger control account from the following
information:

1-Mar Sales ledger balance 2 456

Purchases ledger balance 1 874

31-Mar Credit sales 8 765

Credit purchases 6 745

Return inwards 124

Return outwards 116

Discount allowed 237

Discount received 256

Bad debts 277

Interest charged on overdue accounts 324

Refund to customers 198

Contra entry / Set off 230

Receipts from customers 5 875

Payment to suppliers 5 245

Debit balances in purchases ledger 95

Credit balances in sales ledger 75

Q2 Prepare a sales ledger control account and purchases ledger control account from the following
information:

1-May Sales ledger balance 11 445

Purchases ledger balance 9 875

31-May Credit sales 15 235

Credit purchases 10 435

Return inwards 145

Return outwards 1 255

Discount allowed 1 765

Discount received 1 675

Bad debts 1 435

Interest charged on overdue accounts 555

Refund to customers 165

Contra entry / Set off 175

Receipts from customers 17 345

Payment to suppliers 14 355

Debit balances in purchases ledger 155

Credit balances in sales ledger 115