WEEK FOUR
4.0 CONTROL ACCOUNT AND SELF BALANCING LEDGER
4.1 MEANING
a. A control account is an account which records in total what has been entered in detail in the ledger account to which it relates.
b. A control account is a special account put in place to reflect the aggregate balances of many related subsidiary account that are part of the double entry system. It is a mere memorandum account only. It does not form part of the double entry system of accounting.
Control accounts can be kept for the following ledgers
- Sales ledger ———————– customers
- Bought / purchases ledger —————— suppliers
- Inventory ledger ——————– stocks
- Fixed assets ledger control ———————— fixed assets
USES OF CONTROL ACCOUNT
- Location of errors
- Prevention of fraud
- Aids management control
- Internal check on ledgers clerk
- Easy detection of omissing figures
- Ascertainment of debtors and creditors balances
- Preparation of inform final account
- Saves time
- Grouping of account
CLASSIFICATION OF CONTROL ACCOUNT
- Sales ledger control account
- Purchases ledger control account
1. SALES LEDGER CONTROL ACCOUNT: The sales ledger control account is sometimes called total debtors control account. It is the control account for sales or debtors ledger. This will represent all the entries posted to the sales ledger as if only one debtor existed.
DR Sales ledger control account CR
Balance b/f x
Sales (credit) x Cash received from debtor x
Interest charges x Cheque from customer x
Dishonoured bill x Discount allowed x
Carriage outwards x Bill receivable x
Allowances x
Discount disallowed x Bad debt x
Debit note issued x Return inwards x
Payment to debtors for claim x Credit not issued x
Service charges x Contral settlement/entry x
Bal c/d xx
xx xx
2. PURCHASES LEDGER CONTROL ACCOUNT; The purchases ledger control account is referred to as total creditor control account. It is the control account for purchases or creditors ledger. This will represent all the entries posted to the ledger as if only one creditor existed.
DR Purchases ledger control account CR
Cheque to creditors x Bal b/f x
Cash to suppliers x Purchases (credit) x
Discount received x Cash refunds x
Bill payable x Discount withdrawn x
Credit not received x
Returns outwards x
Contra entry/ set off x
Bal c/d x
xx xx
Illustration
Extract from the books of JKO Ltd, show the following balances for the month of June.
Sales ledger balance – 1 June 19×3 47,020
Purchases ledger balance – I June 19×3 27,570
Purchases journal balances – 30 June 19×3 374,370
Purchases journal balance – 30 June 19×3 408,000
Returns inwards 9,100
Returns outwards 7,490
Receipts from customers – cash 385, 290
Discount allowed 13,450
Payment to customers 354,150
Discount received 7460
Bad debt written off 1150
Sales ledger set – off 2090
Purchases ledger set – off 1100
On 30th June 19×3, it was discovered that a supplier was paid twice in error for N1,570. The amount was refunded on that date.
You are required to determine the sales and purchases ledger balances at 1 July 19×3.
JKO LTD
DR Sales ledger control account CR
1/6 Bal b/d 47,020 30/6 Cash receipts 385,290
30/6 Sales 374,370 30/6 Returns inwards 9,100
30/6 Discount allowed 13,450
Bad debt 1150
Set – off 2090
Bal c/d 10,310
421,390 421,390
JKO LTD
DR Purchase ledger control account CR
Bal b/d 27,570
Returns outwards 7,490 Purchases 408,000
Cash payment 354,150 Cash refund 1,570
Discount received 7,460
Set – off 1,100
Bal c/d 66,940
437,140 437,140
Bal b/d 66,940
Illustration 2
Bethings Enterprises maintains self balancing ledgers. From the details given below you are required to prepare the control accounts for purchases and sales ledgers for the year ended 31st December, 19×5.
#
Purchases 15,327
Bad debts written off 220
Bills payable accepted 2,170
Bills receivable drawn 5,020
Interest charged to customers 7
Purchases returns 89
Payment to creditors 12,538
Receipts from debtors 14,308
Bills receivable dishonoured 575
Discount allowed 528
Discount receivable 327
Sales returns 301
Cash refund to debtors 75
Cheque from debtors returned unpaid 25
Sales and purchases ledger control 1017
Bills payable returned for non-payment 150
Sales 20,051
Bad debts recovered (individual in cash from debtors) 8
Creditors ledger balance as at 31st Dec., 19×5 5086
Debtors ledger balance as at 31st Dec., 19×5 6818
Purchase ledger control balance at Jan 19×5 5,750
Sales ledger control account at 1 Jan. 19×5 7,471
Solution
Bettings Enterprises
DR Sales ledger control account CR
Bal b/d 7,471 Bad debts 220
Dishonoured bills 575 Bills receivable 5,020
Cash refund 75 Receipts from debtors 14,308
Returned cheques 25 Discount allowed 528
Sales 20051 Sales returns 301
Bad debts recovered 8 Purchases ledger contra 1017
Interest charge 7 Bal c/d 6818
28212 28212
Bal b/d 6,818
Bettings Enterprises
DR Purchases ledger control account CR
Bills payable 2170
Purchases return 89 Bal b/d 5,750
Payment to creditor 12,538 Purchases 15,327
Discount received 327 Bills repayable returns 150
Sales ledger control 1,017
Bal c/d 5,086
21,227 21,227
NOTE: Bills receivable discounted has nothing to do with the control account because the company can as well wait till the bill is matured for payment instead of discounting it, provisions of any kind should not also be posted into the control account, even when it is given in the question.
ASSIGNMENT