CONTROL ACCOUNTS.

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Presentation transcript:

CONTROL ACCOUNTS

(The books of PRIME entry) Recall … The Accounting Cycle (The first 4 steps) Documents Journals (The books of PRIME entry) Ledgers Trial Balance

GENERAL LEDGER Capital (Owner’s equity) Expenses Revenues Assets (except T/R’s) Liabilities (except T/P’s) SALES LEDGER (Debtors Ledger) PURCHASES LEDGER (Creditors Ledger) T/Rs’ accounts T/Ps’ accounts

(or Sales Ledger Control A/c) (or Purchases Ledger Control A/c) CONTROL ACCOUNTS Debtors Control A/c (or Sales Ledger Control A/c) Creditors Control A/c (or Purchases Ledger Control A/c) TOTALS of all a/cs relating to T/R’s; Summarizes all transactions with T/R’s relating to T/P’s; Summarizes all transactions with T/P’s

A typical T/R’s account ... John Tan Dr Cr 2001 $ Jan 1 Balance b/d 31 Sales Dishonoured cheques Discount withdrawn Any other charges Feb 1 Balance b/d 2001 $ Jan 31 Bank / Cash Sales returns Discount allowed Bad debts Balance c/d

Debtors Control Account Dr Cr 2001 $ Jan 1 Balance b/d 31 Sales Dishonoured cheques Discount withdrawn Any other charges Feb 1 Balance b/d 2001 $ Jan 31 Bank / Cash Sales returns Discount allowed Bad debts w/o Balance c/d TOTALS

A typical T/P’s account ... ABC Pte Ltd Dr Cr 2001 $ Jan 31 Bank / Cash xx Purchases returns xx Discount received xx Balance c/d xx 2001 $ Jan 1 Balance b/d xx 31 Purchases xx Carriage inwards xx Any other charges xx Feb 1 Balance b/d

Creditors Control Account Dr Cr 2001 Jan 31 Bank / Cash Purchases returns Discount received Balance c/d 2001 Jan 1 Balance b/d 31 Purchases Carriage inwards Any other charges Feb 1 Balance b/d TOTALS TOTALS

Sources of Information Even though the Control Accounts reflect the total of each item, entries in the Control Accounts are NOT taken from the individual T/R’s or T/P’s accounts.

X That is, we should NOT be under impression that ... because therefore Debtor A Sales 500 Debtor B Sales 800 Debtor C Sales 400 Debtors Control Account Sales 1,700 X

What are the books of prime entry? But rather ... The entries in the Control Accounts are made up of TOTALs obtained from BOOKS OF PRIME ENTRY What are the books of prime entry?

For example, Debtor A Sales 500 Sales Ledger Sales Journal Date Amt $ Debtor A 500 Debtor B 800 Debtor B Sales 800 Debtor C 400 Debtor C Sales 400 Sales Account 1,700 Debtors Control Account Sales 1,700

Sources of Information Debtors Control Account

Sources of Information Debtors Control Account

Sources of Information Creditors Control Account

Sources of Information Creditors Control Account

Can you think of other examples? Transfers or Contras Sometimes, a CUSTOMER of a business also happens to be a SUPPLIER. For example, A business selling cloth also buys Singapore flags from a flag manufacturer. Can you think of other examples?

How should the accounts be presented For example, Silky Co. sold $500 worth of cloth to Singaflag Pte Ltd in July 2002. During the same month, Silky Co. also bought $200 worth of Singapore flags from Singaflag Pte Ltd. How should the accounts be presented in Silky Co.’s books?

Silky Co. SALES LEDGER Singaflag Pte Ltd $ Sales 500 Transferred from PURCHASES LEDGER Purchases 200 Silky Co. Transferred from Purchases Ledger 200 Balance c/d 300 500 Balance b/d 300 Transferred to Sales Ledger 200

NOTE 1. The SMALLER amount is transferred. 2. The DEBTOR is always CREDITED and the CREDITOR is always DEBITED.

Silky Co. sold $500 worth of cloth to Singaflag Pte Ltd in July 2002. During the same month, Silky Co. also bought $200 worth of Singapore flags from Singaflag Pte Ltd. How should the accounts be presented in Silky Co.’s books? What about Singaflag Pte Ltd’s books?

Singaflag SALES LEDGER Silky Co. $ Sales 200 Transferred to PURCHASES LEDGER Purchases 500 Singaflag Transferred to Purchases Ledger 200 Transferred from Sales Ledger 200 Balance c/d 300 500 Balance b/d 300

Transfers or Contras always appear on the CREDIT side of the Debtors Control Account and DEBIT side of the Creditors Control Account Debtors Control Account Dr Cr Creditors Control Account Transfers or Contras

When will such situations happen? Unusual Balances At times, some debtors may have small credit balances and creditors may have small debit balances. When will such situations happen?

For example, Some debtors returning empty containers / defective goods for which they have been charged. Or, some debtors may have been overcharged. When there is no or insufficient debit balances to offset this credit items, these debtors will have credit balances for the time being.

C Tan Eg. A debtor, C Tan, has settled his account of $500. Subsequently, he returns empty containers to the value of $10. C Tan Dr Cr 2002 Jan 1 Balance 500 31 Balance c/d 10 510 Jan 10 Cash 500 25 Returns 10 Feb 1 Balance b/d 10 $