CONTROL ACCOUNT

A control account is an account in the nominal ledger in which a record is kept of the total value of a number
of similar but individual items. Control accounts are used chiefly for trade receivables and payables.

 A receivables control account is an account in which records are kept of transactions involving all
receivables in total. The balance on the receivables control account at any time will be the total amount
due to the business at that time from its receivables.
 A payables control account is an account in which records are kept of transactions involving all
payables in total. The balance on this account at any time will be the total amount owed by the
business at that time to its payables.

Discounts:
Discounts can be defined as follows.

 A trade discount is a reduction in the list price of goods, given by a wholesaler or manufacturer to a
retailer. It is often given in return for bulk purchase orders.
Examples of Trade Discount:
(a) A customer is quoted a price of $1 per unit for a particular item, but a lower price of 95 cents per unit if the
item is bought in quantities of 100 units or more at a time.
(b) An important customer or a regular customer is offered a discount on all the goods the customer buys,
regardless of the size of each individual order, because the total volume of the customer's purchases over time
is so large.

A cash discount (or settlement discount) is a reduction in the amount payable to the supplier, in return for
immediate payment in cash, or for payment within an agreed period.
Example of Cash Discount:
A supplier charges $1,000 for goods, but offers a discount of 5% if the goods are paid for immediately in cash.
Alternatively, a supplier charges $2,000 to a credit customer for goods purchased, but offers a discount of 10%
for payment within so many days of the invoice date.
Accounting for discounts
Trade discounts received are deducted from the cost of purchases. Cash/settlement discounts received
are included as 'other income' of the period. Trade discounts allowed are deducted from the gross sales
price, and the net amount is then invoiced to the customer.
If a customer is expected to take up a cash/settlement discount allowed, the discount is deducted from the
invoiced amount when recording the revenue for the sale. If the customer subsequently does not take up the
discount, the discount is then recorded as revenue.
If the customer is not expected to take up the discount, the full invoiced amount is recognized as revenue when
recording the sale. If the customer subsequently does take up the discount, revenue is then reduced by the
discount.

Example:
Settlement discounts allowed 1
Chippies sells goods to Table Tops at a price of $7,600 including delivery. Table Tops is allowed 60 days' credit before
payment, but is also offered a discount of 5% for payment within 10 days of the invoice date. Chippies issues the following
invoice to Table Tops.
Important Point:
If a customer is expected to take advantage of a cash (or settlement) discount allowed, the discount is
deducted from the full invoiced sales amount when recognizing revenue for the sale. If the customer
subsequently does not take up the discount, it is recorded in revenue.
Conversely, if a customer is not expected to take advantage of a cash (or settlement) discount allowed, the full
invoiced sales amount is recognized as revenue for the sale. If the customer subsequently does take up the
discount, revenue is reduced by the discount amount.