Lecture 9

Control Accounts
A control account is a summary account in the general ledger. The details that support the balance in
the summary account are contained in a subsidiary ledger—a ledger outside of the general ledger.
The purpose of the control account is to keep the general ledger free of details, yet have the correct
balance for the financial statements. For example, the Accounts Receivable account in the general
ledger could be a control account. If it were a control account, the company would merely update the
account with a few amounts, such as total collections for the day, total sales on account for the day,
total returns and allowances for the day, etc.

Sales Ledger Control Accounts

 ledger accounts in the general ledger that summarise a large number of customers
transactions

Purchases Ledger Control Accounts

 ledger accounts in the general ledger that summarise a large number of suppliers
transactions

The set-up of control accounts in the general ledger means that:

 the sales and purchases ledgers are removed from the double-entry book keeping system
 sales and purchases ledgers  “subsidiary ledgers”
 personal accounts in sales and purchases ledgers  memorandum (or memo) accounts
- Memo accounts do not form part of the double-entry system; they exist only to
provide necessary information about individual debtor or creditor accounts for
reconciliation purpose.

Advantages of Using Control Accounts

 To provide a check on the accuracy of entries by comparing the total balances in the
control accounts with the total of individual balances in the sales or purchases ledger.
This will assist in locating errors more easily.
 To provide an internal check when there is a separation of book-keeping duties. The
person posting entries to the control accounts will act as a check on another person whose
job is to post entries to the personal accounts.
 To provide trade receivables and payables balances more quickly for preparing the
trial balance and the balance sheet.
 Preparation of a Purchase Ledger Control Account

Purchase Day Book

General Ledger Date Details Amount Trade Payable
2020 $
Purchases 5 Dec A 700 A
Total 1,900 12 Dec X 200 Purchase 150 Purcha 700
Returns se
25 De Y 400 Cash 500
26 Dec Z 600 Discount 50
received
1,900 700 700

Purchase Retunes Purchase Returns Day Book X

Total 325 Date Details Amount Bal c/d 200 Purcha 200
se
2020 $
19 Dec A 150
28 Dec Y 75 Y
28 Dec Z 100 Bank 100 Purcha 400
se
Discount Received 325 Discount 25
received
Total 95 Purchase 75
returns
Cash Book (Shown only Credit Balance) Bal c/d 200
Date Details Disc Cash Bank 400 400
2020 年
12 月 22 日 A 50 500 - Z
26 Y 25 - 100 Bank 200 Purcha 600
日 se
26 Z 20 - 200 Discount 20
received
95 500 300 Purchase 100
returns
Bal c/d 280
600 600
Example 1：

(1) Preparation of a Purchase Ledger Control Account

Purchase Day Book

General Ledger Date Details $ Trade Payable
2020 $
Purchase 5 Dec A 700 A
1,900 12 Dec X 200 Purchase 150 Purcha 700
Returns se
25 Dec Y 400 Cash 500

Trade Payable Ledger Control 26 Dec Z 600 Purchase 50

Account returns
Purchas 1,900 1,900 700 700
e

Purchase Returns Purchase Returns Day Book X

Total 325 Date Details Amount Bal c/d 200 Purcha 200
se
2020 $
 Trade Payable Ledger Control 5 Dec A 150
Account
Purchase 325 28 Dec Y 75 Y
Returns

28 Dce Z 100 Bank 100 Purcha 400

se
Discount Received 325 Discount 25
recieved
Total 95 Purchase 75
returns
Cash Book (Shown only Credit Balance) Bal c/d 200

Trade Payable Ledger Control Date Details Disc Cash Bank 400 400
Account
Discount 95 2020
received

22 Dec A 50 500 - Z

Trade Payable Ledger Control 26 Dec Y 25 - 100 Bank 200 Purcha 600
Account se
Cash 500 26 Dec Z 20 - 200 Discount 20
received
Bank 300 95 500 300 Purchase 100
returns

Bal c/d 280

600 600
Trade Payable Ledger Control Account Trade Payable Ledger Total
Purchase 325 Purchase 1,900 W 0
Returns
Discount 95 X 200
received
Cash 500 Y 200
Bank 300 Z 280
Bal c/d 680 Equal 680
1,900 1,900

Note：Not related account of (A) Cash Purchase (B) Carriage Inwards

Purchases Ledger Control

 When postings from the purchases journal to the trade payables control account are made
monthly, the control account would be:
 (a) DEBIT with the monthly totals of:
(i) cash/bank paid (from cash book) to trade payables
(ii) discounts received (from discount column of cash book) from suppliers
(iii) returns outwards (from returns outwards journal)
(iv) contras (from general journal)
(b) CREDIT with:
(ii) total credit purchases (from purchases journal) for the month
(iii) cash/bank refund (from cash book) from suppliers who have overcharged customers
(iv) bank for dishonored cheques (from cash book) returned from creditors
(v) interest payable to creditors on overdue debts (from general journal)
(vi) minority (or sundry) debit balances (from sales ledger)
- monthly total of closing debit balances of trade payables (happen when e.g. a
down payment has been made to a supplier and therefore the account in the
purchases ledger will be a debit)
- these balances will be carried down separately in the purchases control account
and be added to trade receivables in the balance sheet

Purchases Ledger Control

$ $
Balance (minority bal.) b/d x Balance b/d x
Decrease the
Cash / Bank x Purchases (credit) x Increase the
balance Discounts received x Cash / Bank – refund x balance
Returns outwards x Bank – dishonored cheque x
Sales ledger control - contra x Interest expense x
Balance c/d * x Balance (minority bal.) c/d x
x x
-
- *Note: the balance on the purchases ledger control account should be equal to the
total of the list of balances of the trade payables’ accounts at month end.

Preparation of a Sales Ledger Control Account

Example 1：
Sales Day Book
General Ledger Date Details Amount Trade Receivable
2020 $
Sales 5 Dec A 700 A
Total 1,900 12 Dec X 200 Sales 700 Sales 150
Returns Return
s
25 Dec Y 400 Cash 500
26 Dec Z 600 Discou 50
nt
allowe
d
1,900 700 700

Sales Returns Sales Returns Day Book X

Total 325 Date Details Amount Sales 200 Bal c/d 200
 2020 $
19 Dec W 150
28 Dec Y 75 Y
28 Dec Z 100 Sales 400 Bank 100
325 Discou 25
Discount Allowed nt
allowe
d
Total 95 Sales 75
returns
Cash Book (Shown only Credit Balance) Bal 200
c/d
Date Details Disc Cash Bank 400 400
2020
22 Dec W 50 500 - Z
26 Dec Y 25 - 100 Sales 600 Bank 200
26 Dec Z 20 - 200 Discou 20
nt
allowe
d
95 500 300 Sales 100
returns
Bal 280
c/d
600 600

(2) Preparation of a Sales Ledger Control Account

Sales Day Book

General Ledger Date Details $ Trade Receivable
2020 $
Sales 5 Dec A 700 A
1,900 12 Dec X 200 Sales 700 Sales 150
Return
s
25 Dec Y 400 Cash 500

Trade Receivable Ledger Control 26 Dec Z 600 Sales 50

Account returns
Sales 1,900 1,900 700 700

Sales Returns Purchase Returns Day Book X

Total 325 Date Details Amount Sales 200 Bal c/d 200
2020 $

Trade Receivable Ledger Control 5 Dec A 150

Account
Sales 325 28 Dec Y 75
Returns Y

28 Dce Z 100 Sales 400 Bank 400

325 Discou 25
Discount Allowed nt
allowe
d
Total 95 Sales 75
returns
Cash Book (Shown only Credit Balance) Bal c/d 200

Trade Receivable Ledger Date Details Disc Cash Bank 400 400
Control Account
 Discoun 95 2020
t
Allowed

22 Dec A 50 500 - Z

Trade Receivable Ledger 26 Dec Y 25 - 100 Sales 600 Bank 200

Control Account
Cash 500 26 Dec Z 20 - 200 Discou 20
nt
allowe
d
Bank 300 95 500 300 Sales 100
returns

Bal c/d 280

600 600

Trade Receivable Ledger Control Account Trade Receivable Ledger Total

Sales 1,900 Sales 325 W 0
Returns
Discount 95 X 200
allowed
Cash 500 Y 200
Bank 300 Z 280
Bal c/d 680 Equal 680
1,900 1,900

Note：Not related account of (A) Cash Sales (B) Carriage Outwards (C) Provision for
Doubtful Debts
 Presentation of Control Accounts
Sales Ledger Control
 When postings from the sales journal to the sales ledger control account are made monthly, the
control account would be:
(a) DEBIT with:
(i) total credit sales (from sales journal) for the month
(ii) cash/bank refund (from cash book) to customers who have overpaid the accounts
(iii) bank for customers’ dishonored cheques (from cash book)
(iv) interest charged on overdue trade receivables accounts (from general journal)
(v) minority (or sundry) credit balances (from sales ledger)
- monthly total of closing credit balances of trade receivables (happen when e.g. a
customer overpays and therefor the account in the sales ledger will be a credit)
- these balances will be carried down separately in the sales ledger control
account and be added to trade payables in the balance sheet
(b) CREDIT with the monthly totals of:
(i) cash/bank received (from cash book) from trade receivables
(ii) discounts allowed (from discount column of cash book) to customers
(iii) returns inwards (from returns inwards journal)
(iv) bad debts (from general journal)
(v) contras (from general journal)
- set-off ( 對 銷 ) of a personal account’s balance on sales ledger against the
balance on purchases ledger when the person is both a customer and supplier
of the company
- after the two accounts are set-off, the net balance will be settled by cash
Sales Ledger Control
$ $
Balance b/d x Balance (minority bal.) b/d x
Sales (credit) x Cash / Bank x Decrease the
Cash / Bank – refund x Discounts allowed x balance
Increase the
balance Bank – dishonored cheque x Returns inwards x
Bad debts recovered x Purchases ledger control - contra x
Interest revenue x Bad debts expense x
Balance (minority bal.) c/d x Balance c/d * x
x x

*Note: the balance on the debtors’ control account should be equal to the total of the list of
balances of the debtors’ accounts at month end.

Control Accounts Reconciliations

 Reconciliation items happen when the balance on the control account does not agree with
the total of the individual personal accounts in the subsidiary ledger.
 The items of difference may be caused by:
 errors in the control accounts
e.g.
- a total from a book of original entry has been posted to the control account as a
different figure (error of original entry)
- an entry has been entered to the wrong side of individual personal account in the sales
ledger (posting error)
- the list of balances (error of omission)