CONTROL ACCOUNTS

The principle on which the control account is based states that: If the opening balance of an
account is known, together with the information of the additions and deductions entered in the
account, the closing balance can be calculated.

The nature and uses of control accounts:

A Control account contains the totals of all postings made to the accounts in a particular ledger.
Control accounts are usually maintained for the sales and purchase ledgers. The totals are the
periodic totals of the books of prime entry from which postings are made to the ledger.
The balance of a Control account should equal the total of the balances in the ledger it controls.
Because the entries in the Control accounts are the totals of the books of prime entry they are
also known as Total accounts. Control accounts are kept in the nominal ledger.
Just as a trial balance acts as a check on the arithmetical accuracy of all the ledgers, a Control
account checks the arithmetical accuracy of a single ledger. A difference between a Control
account balance and total of the balances in the ledger it controls shows where a cause of a
difference on the trial balance may be found.

A sales ledger control account controls the sales ledger; a purchase ledger control account
controls the purchase ledger. If there is a difference on the trial balance, the control accounts
will show whether or not any of the difference is in the sales or purchase ledger accounts. If the
control accounts agree with the balances on the sales and purchase ledgers, the difference
must lie in the nominal or general ledger.

Purpose of making of control accounts:

1. To act as independent checks on the arithmetical accuracy of the aggregates of the
balances in the sales and purchase ledgers.
2. To provide totals of debtors and creditors quickly when a trial balance is being prepared.
3. To identify the ledger or ledgers in which errors have been made when there is a
difference on a trial balance.
4. To act as an independent internal check on the work of the sales and purchase ledger
clerks, to detect errors and deter fraud.

Limitations:
1. Control accounts may themselves contain errors.
2. Control accounts do not guarantee the accuracy of individual ledger accounts, which
may contain compensating errors, for example items posted to the wrong accounts.
Trade receivables or Sales Ledger Control Account: 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. One of the totals in the Sales ledger Control Account is total credit sales
which is the aggregate of all the sales entered in the trade receivable’s accounts.

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. In order to obtain these totals, the Cash Book and Journal need to be ruled with
special columns. For example, the Cash Book contains receipts from various sources other than
debtors. An additional column to record cash received from debtors is necessary.

Example:

Sales Journal Sales or Trade Receivables Ledger

Date Particulars Invoice Amount Dr Sung Y.T A/C Cr

No. $
2002 $
Apr-5 Sung Y.T 007 800 Sales 800
12 K. Ericson 008 280
20 C. Benny 009 750
28 Loo M.J 010 510
____
Dr 30 K. Ericson A/C Cr
Sales Account Cr 2340
$

Sales 280

Sales Ledger Control Account

Dr Cr
$
Sales 2340
 LAYOUT OF THE SALES LEDGER CONTROL A/C

Dr Cr
$ $
Balance b/f (total sales ledger xxx Balance b/f (total sales ledger Xxx
debit bal b/f from previous credit bal b/f from previous
period) period)

Credit Sales (total of sales journal)
Refunds to credit customers (from xxx
cash book)
Dishonored cheques (from cash xxx
book)
Interest charged (from journal)
Bad Debts recovered (from xxx
journal)
Balance c/f (total of credit xxx
balances in sales ledger)
xxx Sales returns (total of sales Xxx
returns journal)
Cash/cheques received from Xxx
credit customers (from cash
book)
Discount allowed (total of Xxx
discount column from cash book)
xxx Xxx
Bad Debts written off (from
journal)
Cash from bad debts recovered Xxx
(from cash book)
Set off – purchase ledger (from Xxx
journal)
Balances c/f (total of debit Xxx
balances in sales ledger)
xxx Xxx

NB**** Cash Sales are not recorded in the sales ledger control account
Provision for doubtful debts do not feature in sales ledger control accounts because provision
accounts are kept in the general ledger, not the sales ledger.
Trade payables or Purchases Ledger Control Account: The Trade Payables Control Account,
also called the Purchases Ledger Control Account or Total Creditors Account, represents all the
creditors in the Purchases Ledger. Since the accounts of the creditors are not in the General
Ledger, a Control Account to replace them has to be constructed and included in the General
Ledger to enable a Trial Balance to be drawn up.
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. A Purchases Ledger Control Account is shown followed by
the sources of information for the account.

Purchases Journal Purchases Ledger

Date Particulars Invoice Amount Dr Sung Y.T A/C Cr

No. $
2002 $
Apr-5 Sung Y.T 007 800 Purchases 800
12 K. Ericson 008 280
20 C. Benny 009 750
28 Loo M.J 010 510
____
Dr 30 K. Ericson A/C Cr
Sales Account Cr 2340

Purchases 280

Purchase Ledger Control Account

Dr Cr
$
Purchases 2340
LAYOUT OF PURCHASES LEDGER CONTROL A/C
Purchase Ledger Control Account
DR CR

$ $

Balance b/f (total of purchases xxx Balances b/f (total of purchases xxx
ledger debit balances b/f from ledger debit balances b/f from
previous period) previous period)
Purchase returns (total of xxx Credit purchases (total of xxx
purchase returns journal) purchases journal
Cash / cheques paid to suppliers xxx Refunds from suppliers (from xxx
(from cash book) cash book)
Discount received (total of xxx Interest charged by suppliers xxx
discount column from cash book) (from journal)
Set off – sales ledger (from xxx Balance c/f (total of debit xxx
journal) balances in purchase ledger)
Balance c/f (total of credit xxx
balances in purchase ledger)

xxx xxx

Transfers or Contras (Set off):

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.
Set offs are to be considered as money received or money paid. These items are entered in the
control accounts on the same side you would normally enter money received or money paid.
Thus, the contra item or set off appears on the credit side of the sales ledger control account
and debit side of purchases ledger control account.

Significance of the balances on the control accounts

The closing balances on the sales ledger control accounts should be equal to the sum total of
the closing balances on the individual debtor accounts in the sales ledger. It follows as well that
the closing balances on the purchases ledger control accounts should be equal to the sum total
of the closing balances on the individual creditor accounts in the purchases ledger. If the
respective balances are not in agreement, then it would suggest some form of irregularity in the
records which would need investigation.

Question for class:

The following data is extracted from the books of Orion Plc for May 2015

May 1 Purchases ledger bal b/f -dr 405

-cr 6210

Sales ledger bal b/f – dr 21566

cr 975

May 31 Monthly Totals: Purchases Day book 44220

Purchase Returns Book 2630
Sales Day Book 86920
Sales Return Book 4220
Cash Book: cash paid to suppliers 38900
Cash received debtors 77840
Discounts received 1400
Discounts allowed 3120
Dishonoured chq 784
Bad Debts written off 1260
Sales ledger balances off set
against purchase ledger balances 2640
Debit balances on PL A/c at May 31 2015 600
Credit balances on SL A/c at May 31 2015 800
Prepare the Control Accounts.