ACCOUNTING

NOTES

CONTROL ACCOUNTS
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 singles 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 control account is so called because it controls a section of the ledger. By control is
meant that the balance on the control account should equal the total of the balances in
the section of the ledger it is controlling. 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.
If the customer accounts are numerous, there may be more than one sales ledger; or
separate sales ledgers may be kept for customers in different geographical regions. A
separate control account will be required for each sales ledger. The same applies if
there is more than one purchase ledger.
Control accounts are kept in the general or nominal ledger, not in the ledgers they are
controlling. The reason for this is given in as below.
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.

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4. To act as an independent internal check on the work of the sales and purchase
ledger clerks, to detect errors and deter fraud. Duties should be so divided between
staff that the sales and purchase ledger clerks have no access to the control
accounts, and the person who maintains the control accounts has no access to the
sales and purchase ledger accounts. For this purpose, it is important that the control
accounts should be kept in the nominal ledger and not in the purchases and sales
ledgers.
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.
Form of control accounts
Control accounts contain in total form all transactions which have been posted as
individual items to the sales and purchase ledgers. They are often known as Total
accounts. The periodic totals of each type of transaction are obtained from the books
of prime entry.

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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
receivables 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
Date
2002
Apr-5
12
20
28
30

Particulars

Invoice
No.

Sung Y.T
K. Ericson
C. Benny
Loo M.J

007
008
009
010

Sales Account

Cr

Sales or Trade receivables Ledger

Sung Y.T A/C

Amount
$

Dr

800
280
750
510
____
2340

Sales 800

Cr

Dr
$
Sales

K. Ericson A/C

Cr

280

Sales Ledger Control Account

Dr

Cr
$

Sales

CONTROL ACCOUNTS

2340

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Following is the layout of the Sales ledger control account:

Sales Ledger Control Account

Dr

Cr
$

Balance b/f (majority)

xxx
Credit Sales (total of sales xxx
journal)
Refunds to credit customers xxx
(from cash book)
Dishonoured
cash book)

cheques

(from xxx

Interest charged (from journal)

xxx
Bad Debts recovered (from xxx
journal)
Balance c/f (total of credit xxx
balances in sales ledger)

xxx

Balance b/f (minority)

Sales returns (total of sales
returns journal)
Cash/cheques received from
credit customers (from cash
book)
Discount allowed (total of
discount column from cash
book)
Bad Debts (from journal)
Cash from bad debts recovered
(from cash book)
Set off purchase ledger (from
journal)
Balances c/f (total of debit
balances in sales ledger)

Xxx
Xxx
Xxx

Xxx

Xxx
Xxx
Xxx
Xxx
Xxx

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.

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Purchases Journal
Date
2002
Apr-5
12
20
28
30

Particulars

Purchases Ledger

Invoice
No.

Sung Y.T
K. Ericson
C. Benny
Loo M.J

007
008
009
010

Sales Account

Cr

Sung Y.T A/C

Amount
$

Dr

800
280
750
510
____
2340

Purchases 800

Cr
$

Dr
K. Ericson
$
Purchases 280

A/C

Cr

Purchase Ledger Control Account

Dr

Cr
$

Purchases 2340

Following is the layout of the Purchase ledger control account:

Purchase Ledger Control Account

Balance b/f (minority)

Purchase returns (total of
purchase returns journal)
Cash / cheques paid to
suppliers (from cash book)
Discount received (total of
discount column from cash
book)
Set off sales ledger (from
journal)
Balance c/f (total of credit
balances in purchase ledger)

$
xxx
xxx
xxx
xxx
xxx

$
xxx
xxx
xxx
xxx

Balance c/f (total of debit xxx

balances in purchase ledger)

xxx
xxx

CONTROL ACCOUNTS

Balances b/f (majority)

Credit purchases (total of
purchases journal
Refunds from suppliers (from
cash book)
Interest charged by suppliers
(from journal)

xxx
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Transfers or Contras:
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.
Minority Balance in control Accounts:
Generally, trade receivables (debtors) accounts contain debt balance and trade
payables (creditors) accounts contain credit balances. But at times, some trade
receivables (debtors) may have small credit balances and trade payables (creditors)
may have small debit balances. Take the case of the Sales Ledger. After settling their
accounts, some debtors may return empty containers for which they have been
charged, or in another scenario, they may have been overcharged for goods bought.
When these items are credited to their accounts at balancing time, there may be no
debit balance to offset them. As a result, these debtors will have credit balances for the
time being.
Limitations of Control Accounts:
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 wrong
accounts.
Reconciliation of Control Accounts with Ledgers:
When there is a difference between the balance on a Control account and the total of
the balances in the ledger it controls, the cause or causes must be found and the
necessary corrections made. This is known as reconciling the Control accounts.
It is helpful to remember the following :
1. If a transaction is omitted from a book of prime entry, it will be omitted from the
personal account in the sales or purchase ledger and from the Control account.
Both records will be wrong and the Control account will not reveal the error.
2. If a transaction is entered incorrectly in a book of prime entry, the error will be
repeated in the personal account in the sales or purchase ledger and in the
Control account. Both records will be wrong and the Control account will not
reveal the error.
3. If an item is copied incorrectly from a book of prime entry to a personal account
in the sales or purchase ledger, the Control account will not be affected, and it
will reveal that an error has been made.

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4. If a total in a book of Prime entry is incurred, the Control account will be incorrect
but the sales or purchase ledger will not be affected. The Control account will
reveal that an error has been made.
5. If there is an error in the Totals then the Control Accounts are affected as control
accounts included the information in total form.
For example; Total of Discount allowed overstated by $500.
6. If there is an error in the books of prime entry, the Control Account will be
incorrect but the Sales or Purchase Ledgers will not be affected. It will be
recorded in the Adjusted Control Account.
For example, Sales Journal is overcast by $1000.
7. If there is an error in the individual accounts of Debtors and Creditors then it will
be recorded in the Reconciliation Statement; prepared to reconcile errors in
ledgers.
For example, Sales for $1500 has been entered correctly in the Sales journal
but has been entered in the Customers account as $150.
Worked Example:
The following information has been extracted from Dupreys books at 31 December
2003.
$
Total of sales ledger balances (debit)
17 640
(credit)
110
Balance on Sales Ledger Control account (debit)
18 710
The following errors have been discovered.
1. A sales invoice for $100 has been omitted from the sales journal.
2. A credit balance of $35 in the sales ledger has been extracted as a debit balance
in the list of sales ledger balances.
3. The sales journal total for December has been overstated by $1000.
4. A balance of $250 on a customers account in the sales ledger has been set
against the amount owing to him in the purchase ledger but no entries have been
made for this in the Sales and Purchase Ledger Control accounts.
Required:
Calculate the following at 31 December 2003.
a. the revised sales ledger balances.
b. the amended sales ledger control account.

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Answer
Revised sales ledger balances:
$
17 640
100
(35)
17 705

Before adjustment
Invoice omitted from sales journal
Credit balance listed as a debit
Revised balances

$
110
35
145

Amended Sales Ledger Control Account

2003
Dec 31

Balance b/f
Invoice omitted

2004
Jan 1

$
18 710
100

Balance c/d

145
18 955

Balance b/d

17 705

CONTROL ACCOUNTS

2002
Dec 31 Sales overcastted
Contra to purchase
ledger
Balance c/d
2004
Jan 1

Balance b/d

$
1 000
250
17 705
18 955
145

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