Financial Accounting 2

(BM020-3-1)

Control Accounts

Learning Outcomes

To define control accounts

The purpose of control accounts.
The main types of control accounts.

BM020-3-1-Financial Accounting 2

Slide 1 of 13

Uses of Control Accounts

A control account is so called because it controls a
section of the ledger.
For example, a sales ledger control account controls
the sales ledger; a purchase ledger 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 ledgers.
Control accounts are kept in the general ledger.
BM020-3-1-Financial Accounting 2

Purpose of Control accounts

To act as independent checks on the arithmetical
accuracy of the balances in the sales and purchase
ledgers.
An added advantage of keeping control accounts in
that they can act as mini trial balances, since they
are summary accounts.
To identify ledgers in which errors have been made
when there is a difference on a trial balance.

BM020-3-1-Financial Accounting 2

Purpose of Control accounts (cont)

To act as an independent internal check
on the work of the sales & purchase
ledger clerks, to detect errors or fraud.
Duties should be divided where the person
keeping the sales or purchase ledgers will
not have access to the control account in
the general ledger.

BM020-3-1-Financial Accounting 2

Slide 1 of 13

Form of Sales Control Account

Sales Day Book/Sales Journal
Sales ledger
(customers account)

General ledgers

Sales ledger control

account
BM020-3-1-Financial Accounting 2

Sales account

Sales Ledger Control Account

(Accounts Receivable Control A/C)

Sales ledger:
Ali
Jan 8 Sales 1600

Chew
Jan 19 Sales 1000

BM020-3-1-Financial Accounting 2

Baba
Jan 15 Sales 2500

Elan
Jan 26 Sales 3500

General ledger:
Sales Account
2009
Jan 31 Credit sales for
month

BM020-3-1-Financial Accounting 2

8,600

General ledger:
Sales Ledger Control Account
2009
Jan 1
Jan 31

2009
Balance b/d
Sales

Feb 1 Balance b/d

BM020-3-1-Financial Accounting 2

1,600
8,600
10,200
10,200

Jan 31 Balance c/d 10,200

10,200

Sales Ledger Control

2009
Jan 1
Balance b/d
xxxx
Jan 31 Sales day book
xxxxx
(total of sales invoiced in the
period

xxxxx

BM020-3-1-Financial Accounting 2

2009
Jan 31
Returns inwards Day Book
(total of all goods returned from
debtors in the period)
xxx
Jan 31
Cash book
xxx
(total of all cash received from
debtors in the period)
Jan 31
Cash book
xxx
(total of all cheques received from
debtors in the period)
Jan 31
Balance c/d
xxx
xxxxx

Example 1 of Sales ledger control account data:

Debit balances on 1 January 2009
Total credit sales for the month
Cheques received from customers in the month
Cash received from customers in the month
Returns inwards from customers during the month
Debit balances on 31 January as extracted
from the sales ledger

Sales ledger control

BM020-3-1-Financial Accounting 2

1,894
10,290
7,284
1,236
296
3,368

Example 1 of Sales ledger control account data:

Debit balances on 1 January 2009
Total credit sales for the month
Cheques received from customers in the month
Cash received from customers in the month
Returns inwards from customers during the month
Debit balances on 31 January as extracted
from the sales ledger

1,894
10,290
7,284
1,236
296
3,368

Sales ledger control

2009
Jan 1 Balances b/d
Jan 31 Sales

1,894
10,290
12,184

BM020-3-1-Financial Accounting 2

2009
Jan 31
Jan 31
Jan 31
Jan 31

Bank
7,284
Cash
1,236
Return Inwards 296
Balances c/d
3,368
12,184

Information for sales ledger

control account

Exhibit 2.1 Source of information for sales ledger control account

BM020-3-1-Financial Accounting 2

Form of Purchase Control Account

Purchase Day Book/Purchase Journal
Purchase ledger
(creditors account)

General ledgers

Purchases Ledger control

account
BM020-3-1-Financial Accounting 2

Purchases account

Purchase Ledger control account

The total accounts payable account is
also referred to as the Purchase ledger
control account
The credit balance in this account in the
general ledger must always be equal to
the total of the credit balances of the
individual creditors accounts in the
purchases ledger at a particular point in
time.
BM020-3-1-Financial Accounting 2

Purchase Ledger Control Account

Purchase ledger:
Sow
Jan 3 Purchases 1,500

Rama
Jan 18 Purchases 10,000

BM020-3-1-Financial Accounting 2

Bob
Jan 10 Purchases 4,500

Tom
Jan 21 Purchases 4,000

General ledger
Purchase Ledger control account
20X9
Jan 31

Balance c/d

23,000

20X9
Jan 1 Balance b/d
Jan 31 Purchases

23,000
Purchases account
Jan 31 Sundry creditors

BM020-3-1-Financial Accounting 2

23,000

3,000
20,000
23,000

Information for purchases

ledger control account

Exhibit 2.2 Source of information for purchases ledger control account

BM020-3-1-Financial Accounting 2

Question and Answer Session

Q&A
BM020-3-1-Financial Accounting 2

Slide 1 of 13

Exercise
Frank Wood & Alan Sangster (2008)
Business Accounting 1, Eleventh edition,
Prentice Hall.
31.2A, 31.4A, 31.7A, 31.8A (pg 380 382)

BM020-3-1-Financial Accounting 2

Slide 1 of 13

What we will cover next

Errors and Adjustment

BM020-3-1-Financial Accounting 2

Slide 1 of 13