1. Control Accounts

2. Functions of control accounts
The control accounts help us to locate errors.
The control accounts provide a summary. The total balances of the debtors and creditors can be derived quickly and easily.
The control accounts are prepared by a different person than the one who prepares the sales and purchases ledgers, which also make fraud more difficult.

3. Form of control accounts
It is usual to final control accounts in the same form as an account, with the totals of the debit entries in the ledger on the left-hand side of the control account, and the totals of the various credit entries in the ledger on the right hand side of the control account.

4. Sales ledger control account
Sales ledger control account = Total debtors account

5. Sales Ledger Control Account$
Dec 1 Balance b/f a
31 Sales b
31 Cash / Bank c
31 Bank d
31 Bills receivable e
31 Interest received f
31 Bad debts recovered g
31 Balance c/f h x $
Dec 1 Balance b/f i
31 Returns Inwards j
31 Cash / Bank k
31 Bills receivable l
31 Set-off m
31 Discount allowed n
31 Bad debts o
31 Balance c/f p

6. Items
Sources
a. Total of opening debit balance of debtors
Sales ledger
b. Total credit sales
Sales journal
c.Cash refund to a customer who has overpaid his account
Cash book
d. Dishonoured cheques
e. Dishonoured bills
Journal
f. Interest charged by us on overdue debts
g. Bad debts recovered
h. Total of closing credit balances of debtors

7. i. Total of opening credit balances of debtors
Sales ledger
j. Returns inwards
Returns inwards journal
k. Cash or cheques received from debtors
Cash book
l. Bills receivable from debtors
Journal
m. Balances in sales ledger set off against credit balances in purchases ledger
n. Discounts allowed
o. Bad debts written off (not provision for bad debts)
p. Total of closing debit balances of debtors

8. Purchases ledger control account
Purchases ledger control account = Total creditors account

9. Purchases Ledger Control Account$
Dec 1 Balance b/f a
31 Returns Outward b
31 Cash / Bank c
31 Bills Payable d
31 Set-off e
31 Discounts Received f
31 Balance c/f h x
Dec 1 Balance b/f h
31 Purchases i
31 Cash / Bank j
31 Bank k
31 Bills Payable l
31 Interest Expenses m
31 Balance c/f n

10. Items
Sources
a. Total of opening debit balances of creditors
Purchases ledger
b. Returns outwards
Returns outwards journal
c. Cash or cheques paid to creditors
Cash book
d. Bills payable to creditors
Journal
e. Balances in purchases ledger set off against debit balances in sales ledger
f. Discounts received
g. Total of closing credit balances of creditors

11. h. Total of opening credit balances of creditors
Purchases ledger
i. Total credit purchase
Purchases journal
j. Cash refund from suppliers who have overcharged us
Cash book
k. Dishonoured cheques returned from creditors
l. Dishonoured bills returned from creditors
Journal
m. Interest payable on overdue debts
n. Total of closing debit balances of creditors

12. Types of Minority balances
Temporary debit balances in total creditors account
Temporary credit balances in total debtors account

13. Reasons for the occurrence of minority balances
Returns after settlement of the accounts
Claims for shortages of goods or for invoices overcharged after settlement the accounts

14. Minority balances on the balance sheet
Debtors (debit balance of sales ledger + debit balance of purchases ledger) X 八
Less: provision for bad debt (debit balance of
sales ledger x percentage) X X
Creditors (credit balances of purchases
ledger + credit balances of sales
ledger) X

15. Contra item
If the same firm is both a supplier (creditor) and a customer (debtor), inter-indebtedness is set-off
Contra items(set-off) are shown on the credit side of the sales ledger control account and will appear on the debit side of the purchases ledger control account

16. The following information was extracted from the books of Lewell Ltd
The following information was extracted from the books of Lewell Ltd. On 1 March 1996:
Purchases ledger control account ,500
Sales ledger control account ,300
During the month:
Cash sales ,000
Credit sales ,000
Cash purchases ,800
Credit purchases ,000

17. Discounts received from suppliers 5,400
Discounts allowed to customers ,200
Returns Inwards
Cash received from customers ,000
Cash payment to suppliers ,000
Returns Outwards
Bad debts written off
Bills receivable from customers ,000
Dishonoured cheques returned to customers
Balances in sales ledger set off against credit
Balances in purchases ledger ,600

18. Example 1

19. Total creditors account
31/3 discount received 5400
31/3 bal b/f
Returns outwards 700
31/3 purchases
Set-off
Cash
Bal c/f
Total debtor accounts
31/3 discount allowed
31/3 Bal b/f
Returns inwards
Sales
Bad debts
Bank
Cash
Bill receivable
Set-off
Bal c/f

20. Comparing Sectional Balancing and Self-balancing system

21. Self-Balancing system
In larger organizations, control accounts are part of the double entry system,
The sales ledger and purchases ledger (debtors and creditor accounts) are kept only on a memorandum purposes .

22. Sectional Balancing System
In small firms, debtors and creditors accounts are regarded part of the double-entry system
The control accounts should be kept only for memorandum purposes

23. Sectional Balancing System
Original
documents
Sales/Purchases
Journals
Sales Ledger control a/c
Purchases ledger control a/c
General ledger
Sales and purchases a/c
Sales/purchases ledgers
Debtors/Creditors
Trial Balance
For memorandum
purpose
Double-entry system
Note: posting
extracting

24. Self-Balancing System
Original
documents
Sales/Purchases
Journals
Sales/purchases ledgers
Debtors/Creditors
General ledger
Sales and purchases a/c
Sales Ledger control a/c
Purchases ledger control a/c
Trial Balance
For memorandum
purpose
Double-entry system
Note: posting
extracting

25. Transaction recording

26. Seller’s book

27. Self-balancing System Sectional Balancing System
Transactions
Self-balancing System
Sectional Balancing System
A Credit sales
Dr Sales Ledger Control
Cr Sales
Dr Debtors
B Receipts from debtors
Dr Cash / Bank
Cr Sales Ledger Control
Dr Cash/Bank
Cr Debtors
C Return inwards
Dr Return Inwards
Dr Return inwards
D Discount allowed
Dr Discount Allowed

28. Self-balancing System Sectional Balancing System
Transactions
Self-balancing System
Sectional Balancing System
E Bad debts written off
Dr Bad debts
Cr Sales Ledger Control
Cr Debtors
F Bad debt recovered
Dr Sales Ledger Control
Cr Bad debts recovered
Dr Cash / Bank
Dr Cash/Bank

29. Buyer’s book

30. Self-balancing System Sectional Balancing System
Transactions
Self-balancing System
Sectional Balancing System
A Credit purchases
Dr Purchases
Cr Purchases Ledger Control
Cr Creditor
B Payment to creditors
Dr Purchases Ledger Control
Cr Cash/ Bank
Dr Creditors
Cr Cash/Bank
C Return outwards
Cr Return Outwards
D Discount received
Cr Discount Received
Dr Discount Allowed
Cr Debtors

31. Correction of Errors

32. Self-balancing System Sectional Balancing System
Errors
Self-balancing System
Sectional Balancing System
a. Credit sales invoice omitted
Dr Sales ledger Control
Cr Sales
(Increase the debtors ledger listing.)
Dr Debtors
(Debit the sales ledger control account.)
b. Sales omitted in journal
Dr Sales Ledger Control

33. c. Sales of $120 incorrectly entered in sales journal as $100
Dr sales Ledger Control
Cr Sales
(increase the debtors ledger listing.)
Dr Debtors
(Debit the sales ledger control account.)
d. Sales journal undercast.
Dr Sales ledger Control
(The debtors ledger listing remains constant, because only the total figure is wrong. This does not affect the debtors accounts, the figures for which are entered individually.)
Dr Suspense
e. Sales of $120 incorrectly entered as $100 in sales account

34. f. Sales understated in sales ledger control account
Dr Sales Ledger Control
Cr Suspense
No entry
(Debit the sales ledger control account.)
g. Sales of $120 incorrectly debited to debtor account as $100.
(Increase the debtors ledger listing.)
Dr Debtors
h. Balance of sales has been incorrectly put to the wrong side of the trial balance.
Dr Suspense
i. Balance of debtors has been incorrectly put to the wrong side of the trial balance.

35. j. Balance of sales ledger control account has been incorrectly put to the wrong side of the trial balance.
Cr. Suspense
No entry

36. Example 2

37. John Chan The Journal Dr Cr Dec 31 Sales Ledger Control 530 Sales 530
$ $
Dec 31 Sales Ledger Control
Sales
31 Suspense ,050
Discount received ,050
31 Returns Outwards 3,200
Purchase Ledger Control ,200
31 Purchases Ledger Control
Sales Ledger Control
31 Bank ,000
Sales Ledger Control ,000
31 Bank ,250
Suspense ,250

38. Sales Ledger Control Account
Suspense Account $
Balance b/f ,200
Discounts received ,050
2,250
Bank ,250
_____
Sales Ledger Control Account $
Balance b/f ,000
Sales
Balance c/d ,950
33,480
Balance b/d ,360
Bank ,000
Purchase Ledger Control-set off
Balance c/d ,360
Balance b/d ,950

39. Statement showing the Revised Balance of Sales Ledger Listing$
Original Balance ,000
Add Invoice understated
Revised Balance ,360
Purchases Ledger Control Account $
Sales Ledger Control-set-off
Balance c/d ,500
______
16,620
Balance c/d
Balance b/d ,000
Returns Outwards ,200
Balance c/d ,420
Balance b/d ,500

40. Statement showing the Revised Balance of Purchases Ledger Listing$
Original Balance ,135
Less Balance overstated
Revised Balance ,500
Statement showing the Revised Net Profit for the year ended 31 Dec 1996
$ $
Net Profit as per accounts ,200
Add Sales undercast
Discounts Received undercast , ,580
12,780
Less Returns Outwards overcast ,200
Revised Net Profit ,580

41. John Chan Balance Sheet as at 31 Dec 1996 Fixed Asset 12,000
$ $
Fixed Asset ,000
Less Prov. For Depn ,000
7,000
Current Assets
Stock ,000
Debtors ( ) ,780
Bank ( ) 10, ,030
67,030 $
Capital
Balance as at 1 Jan ,000
Add Net Profit ,580
47,580
Current Liabilities
Creditors( ) ,450
______