Advanced-Level

Control Accounts
A. Objects and advantages of self-balancing ledgers

If a firm has a large number of debtors and/or creditors the process of taking a trial balance can
become prolonged. With a large number of accounts there is also a greater possibility of an error
occurring within one of the individual debtor's or creditor's accounts.
It would be of great assistance, therefore, if the debtors ledger could be agreed or balanced
separately and similarly the creditors ledger. In this way an error, on say a debtor's account will be
isolated, rather than appear as an unidentifiable error on the full trial balance.
The advantages of maintaining a system of control accounts are:
(1) As control accounts substitute the totals from schedules of debtors and creditors, a complete
trial balance may be compiled before the individual personal ledger balances are abstracted.
Thus it lessens the time and labour involved in preparing a trial balance.
(2) As errors are localised, differences on a trial balance can be traced to the particular ledger
where the errors exist and the work of checking can be restricted to that ledger. It saves time,
money and labour and delay in balancing is minimised.
(3) The system operates as a control over the personal ledgers and constitutes a valuable feature
of the system of internal check. It safeguards the records from unintentional errors or
fraudulent entries.
(4) Control accounts provide management with immediate access to current totals of debtors
and creditors, and furthermore it reduces risk of error by posting totals rather than individual
items.

B. Preparation of control accounts

The information required for the preparation of the debtors ledger control account (total
debtors account/debtors control account) can be found as follows:

Debits Source (book of prime entry)

Credit sales Sales day book
Bad debts recovered Journal
Dishonoured cheques Cash book
Dishonoured bills Journal
Refunds to debtors Cash book
Correction of errors Journal

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Credits Source (book of prime entry)

Sales returns Sales returns book
Cash received from debtors Cash book
Cash received from bad debts recovered Cash book
Discounts allowed Cash book - discount column
Bad debts written off Journal
Bills receivable Journal
Contra entries Journal
Correction of errors Journal

The purchases ledger control account (bought ledger control account/total creditors
account/creditors control account) would be built up from the following sources:

Debits Source (book of prime entry)

Purchases returns Purchases returns book
Payments to creditors Cash book
Discounts received Cash book - discount column
Bills payable Journal
Contra entries Journal
Correction of errors Journal

Credits Source (book of prime entry)

Credit purchases Purchases day book
Refunds from creditors Cash book
Dishonoured bills payable Journal
Correction of errors Journal

C. Two different arrangements for control accounts in the ledger

1. Individual debtors/creditors are parts of the ledger while the control accounts are only
memorandum records.
2. The control accounts are parts of the ledger while the individual debtors/ creditors are
subsidiary records only.
These different arrangements will not affect the preparation and reconciliation of the control
accounts but correction of errors may not be the same under these two systems.

Example
Prepare the journal entries for the correction of the following errors under two different systems.
i) Sales day book was undercast by $200.
ii) A refund of $300 to a debtor was posted as a receipt from him.
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iii) A debit balance of $185 had been omitted from the schedule of debtors.
iv) $400 goods were returned from Mr. Johnson and the only record in the book was the
crossing out of the original entry in Johnson's account.
v) A credit note of $50 received was completely omitted from the books.

Control Account (Memorandum records) Control Account (Part of the ledgers)

i) Suspense account 200 i) Debtors Control a/c 200
Sales 200 Sales 200

ii) Debtors a/c 600 ii) No entry

Suspense a/c 600

iii) Debtors (Trial bal) 185 iii) No entry

Suspense a/c 185

iv) Sales Returns 400 iv) Sales Returns 400

Suspense a/c 400 Debtors Control 400

v) Creditors 50 v) Creditors Control 50

Purchases Returns 50 Purchases Returns 50

D. Special points to be noted in preparation of control accounts

1. Bad debts recovered

Bad debts recovered for the period $ 1 000
Cash received from debtors 60 000
(Including cash from bad debts recovered)
Show the extract of the sales ledger control account.
Sales Ledger Control a/c
Bad Debts Recovered 1000 Cash received 60000

OR
Sales Ledger Control a/c
Bad Debts Recovered 1000 Cash received 59000
Cash from bad debt recovered 1000
OR
Sales Ledger Control a/c
Cash received 59000

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2. Set off

Total credit sales $ 150 000

Total credit purchases 90 000
During the year a large supplier, B Ltd, purchased $5 000 worth of goods from our company.
i. The amount, $5 000, owed by B Ltd was set off against its account balance, $8 000, in
the purchases ledger at the year end. Show the contra entries in the relevant accounts.

Sales Ledger - B Ltd

Sales 5000 Contra – B Ltd 5000

Purchases Ledger – B Ltd

Contra – B Ltd 5000 Balance b/d 8000

OR
Purchases Ledger – B Ltd
Sales 5000 Balance b/d 8000

ii. Our company decided to keep an account for B Ltd in the purchases ledger only and no
contra entries at the year end. Show the extract of the control accounts.

Debtors Control a/c

Credit Sales 150000 Contra – Creditors Control 5000

Creditors Control a/c

Contra – Debtors Control 5000 Credit Purchases 90000

OR
Debtors Control a/c
Credit Sales (150000 – 5000) 145000

Creditors Control a/c

Credit sales to supplier 5000 Credit Purchases 90000

3. Minor balances in sales/purchases ledger

Transactions for the year:

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i. Credit sales to A, B, C were $100, $200 and $300 respectively.

ii. After the full payment, A returned part of the goods and full allowance of $50 was
given.
iii. Credit purchases to X, Y, Z were $200, $400 and $600 respectively.
iv. After full payment to X, we returned goods worth $100 to him.
Prepare:
a. The accounts in sales ledger and purchases ledger.
b. The list of debtors and the list of creditors at the year end.
c. The sales ledger control account and the purchases ledger control account.
d. The debtors and creditors balances in the trial balance.
a.
Sales Ledger - A
Sales 100 Cash 100
Sales Returns 50

Sales Ledger - B
Sales 200

Sales Ledger - C
Sales 300

Purchases Ledger - X
Cash 200 Purchases 200
Purchases Returns 100

Purchases Ledger - Y
Purchases 400

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Purchases Ledger - Z
Purchases 600

b.
List of Debtors List of Creditors
A (50) X (100)
B 200 Y 400
C 300 Z 600
450 900

c.
Sales Ledger Control
Sales 600 Sales Returns 50
Balance c/d 50 Cash 100
Balance c/d 500
650 650

Balance b/d 500 Balance b/d 50

Purchases Ledger Control

Purchases Returns 100 Purchases 1200
Cash 200 Balance c/d 100
Balance c/d 1000
1300 1300

Balance b/d 100 Balance b/d 1000

d.
Trial Balance (Extract)
Dr. Cr.
Debtors (500+100) 600
Creditors (50 + 1000) 1050

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Exercise One
The balances on the personal ledger control account of Galaxy Ltd at 31st December 1992
were as follows:
Dr. Cr.
Purchases ledger $960 $ 56 900
Sales ledger $ 97 550 $480
The following transactions take place during 1993:
Total purchases 194000
Total sales 251000
Cash purchases 6000
Cash sales 5000
Returns inward 500
Returns outward 900
Bills received 7000
Bills dishonoured 1000
Bills payable to creditors 6500
Noting charges on dishonoured bills 50
Payments to creditors 110000
Receipts from cash and credit sales 180000
Receipts from bad debts recovered 2000
Bad debts written off 5500
Increase in provision for bad debts 1500
Refunds of credit customers' overpayments 700
Refunds given to cash customers 330
Allowances to trade debtors on goods damaged 900
Interest charged to customers 200
Cash received in respect of debit balances in purchases ledger 600
Balance in the sales ledger set off against balance in the
purchases ledger 2500

Balances at 31st December 1993 included:

Sales ledger $ 1800 Cr.

Purchases ledger 760 Dr.

Prepare the sales ledger control account and the purchases ledger control account.

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Sales Ledger Control Account

Balance b/d 97550 Balance b/d 480
Credit Sales (251000-5000) 246000 Sales returns 500
Bills dishonoured 1000 Bills receivable 7000
Noting charges 50 Cash received from debtors 175000
Bad debts recovered 2000 (180000 – 5000)
Refunds to debtors 700 Cash received from bad debts 2000
Interest charged to customers 200 recovered
Balance c/d 1800 Bad debts 5500
Allowances to damaged goods 900
Contra 2500
Balance c/d 155420
349300 349300

Purchases Ledger Control Account

Balance b/d 960 Balance b/d 56900
Purchases returns 900 Credit Purchases (194000 – 6000) 188000
Payments to creditors 110000 Cash received (overpayment) 600
Contra 2500 Balance c/d 760
Bill payable 6500
Balance c/d 125400
246260 246260

E. Reconciling the lists of balances with the control accounts

After preparing the sales ledger control account and the purchases ledger control account,
list of debtors and list of creditors will be extracted from the sales ledger and purchases ledger
respectively. The last step is to reconcile the balances from the lists of debtors/creditors with
the sales/purchases ledger control accounts in order to uncover and locate errors in the books.

Example One
The net total of balances in the trial balance which was extracted from the sales ledger as
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on 31st March, 1993 amounted to $50 659 which did not agree with the balance on the sales
ledger control account, 49 880. On checking, the following errors were discovered:

1. The list of balances had been overcast by $200.

2. The sales day book had been undercast by $1 000.
3. A sales return of $600 was completely omitted from the books.
4. A balance owing by Alan had been written off as irrecoverable and debited to bad
debts, but no entry had been made in the control account.

You are required to prepare:

(a) The journal entries to correct the above errors.
(b) A statement showing the computation of the corrected sales ledger net balance.
(c) The sales ledger control account showing the necessary adjustments.
a) Journal
Date Particular Dr. Cr.
1 Suspense a/c 200
Debtors (Trial Balance) 200

2 Suspense a/c 1000

Sales 1000

3 Sales Returns 600

Debtors 600

4 No entry

b) A statement for computation of the corrected sales ledger balance

$ $
Balance as per unadjusted sales ledger balance 50659
Less: Overcast of the list 200
Sales returns omitted 600 800
Balance as per corrected sales ledger balance 49859

c) Sales Ledger Control Account

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Balance b/d 49880 Sales returns 600

Sales overcast 1000 Bad Debts written off 421
Balance c/d 49859
50880 50880

Example Two
National Industries Limited maintains subsidiary ledgers for debtors and creditors and control
accounts in the General Ledger.
On October 31, 1993, the net total of balances extracted from the purchases ledger amounted
to $19 452, included a debit balance of $600, which did not agree with the balance on the creditors
control account. The following matters were discovered:

(1) Credit purchase of goods from White, $250 had been posted to the wrong side of his
account.
(2) A return of $330 to Smith was debited to his account but no other entry had been made
in the books.
(3) A debit balance of $70 in the purchase ledger had been taken out as a credit balance.
(4) A transfer of $110 from Fred's account in the purchase ledger to the credit of his
account in the sales ledger had not been entered in either control accounts.

You are required to prepare:

(a) The journal entries where necessary, to correct the errors.
(b) A statement reconciling the original net balances extracted from the purchases ledger
with the adjusted final balance on the creditors control account.
(c) The creditors control account showing the necessary adjustments and the balances on
the account BEFORE these adjustments.

a) Journal
Date Particular Dr. Cr.
1 No entry

2 Creditors control 330

Purchases returns 330

3 No entry

4 Creditors Control 110

Debtors Control 110
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b) A statement for computation of the corrected purchases ledger balance

$
Balance as per unadjusted purchases ledger balance 19452
Add: Wrong posting to white a/c (250x2) 500
19952
Less: A debit balance extracted as a credit (70x2) 140
Balance as per corrected purchases ledger balance 19812

c) Creditors Control a/c

Balance b/d 600 Balance b/d (Balancing fig.) 20852
Contra: purchases returns 110 Balance c/d ((600+70) 670
Purchases returns omitted 330
Balance c/d (19812+670) 20482
21522 21522

Exercise Two

Tuen Mun Ltd keeps control accounts for the purchases and sales ledgers. The following
details were extracted from the books for the month of March 1993:

$
Balances on 1 March 1993
Purchases ledger - debit 212
Purchases ledger - credit 5 185
Sales ledger - debit 9 364
Sales ledger - credit 510
Goods purchased on credit 19 283
Discounts allowed 356
Bad debts written off 237
Goods returned to suppliers 615
Discounts received 241
Cash received from credit customers 24 607
Legal expenses charged to customers 112
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 Advanced-Level

Provision for bad and doubtful debts 300

Total sales 38 940
Cash paid to creditors 16 824
Cash sales 11 500
Sales ledger credit balances on 31 March 1993 376
Purchases ledger debit balances on 31 March 1993 143

An investigation of the books of Tuen Mun Ltd revealed the following errors:
1. An invoice for $1 600 had been posted to a customer's account as $160;
2. A month's total of $7 859 in the purchases day book had been posted to the control
account as $7 589, although posted correctly to the purchases account;
3. Discounts received of $280 had been posted twice to a supplier's account;
4. A debit note $440 received from a customer had been completely forgotten;
5. A debit note $200 issued to a supplier had been credited to another supplier's account;
6. A refund of $120 to a debtors who had a credit balance in the books had been completely
omitted;
7. It was found that a major supplier, Smith, who had a credit balance of $1 200 on 31
March 1993 also owed Tuen Mun Ltd $300 because of a credit sales during the month. It
was the policy of the company to set off these balances.

Required:
a) Prepare control accounts for the month ended 31 March 1993 for the purchases ledger and for
the sales ledger BEFORE any adjustments are made to correct the errors;
b) Adjust the purchases ledger control account and the sales ledger control account after revealing
the errors;
c) Show your calculations of the net total of the balances on the purchases ledger and the net total
of the balances on the sales ledger BEFORE any adjustments are made to correct the errors.
Sales Ledger Control a/c
Mar 1 Balance b/d 9364 Mar 1 Balance b/d 510
Ledger expenses charged to debtors 112 Discounts allowed 356
Credit sales (38940 – 11500) 27440 Bad debts written off 237
Balance c/d 376 Cash received from debtors 24607
Balance c/d 11582
37292 37292

Purchases Ledger Control a/c

Mar 1 Balance b/d 212 Mar 1 Balance b/d 5185
Purchases returns 615 Credit purchases 19283
Discounts received 241 Balance c/d 143
Cash paid to creditors 16824
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Balance c/d 6719

24611 24611

Sales Ledger Control a/c

Balance b/d 11582 Balance b/d 376
Refund to debtors 120 Sales returns omitted 440
Balance c/d (376+120) 256 Contra 300
Balance c/d 10842
11958 11958

Purchases Ledger Control a/c

Balance b/d 143 Balance b/d 6719
Contra 300 Purchases undercast 270
Balance c/d 6689 (7859 – 7589)
Balance c/d 143
7132 7132

A statement for reconciling the sales ledger account

$ $
Balance as per unadjusted net sales ledger (Balancing fig.) 9766
Add: Error in posting (1600-160) 1440
Refund to debtors 120 1560
11326
Less: Sales returns omitted 440
Contra 300 740
Balance as per adjusted net sales ledger (10842 – 256) 10586

A statement for reconciling the purchases ledger account

$ $
Balance as per unadjusted net purchases ledger (Balancing fig.) 6966
Add: Discounts received doubled 280
7246

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Less: Error in purchases returns (200x2) 400

Contra 300 700
Balance as per adjusted net purchases ledger (6689 – 143) 6546

Exercise Three
The balances on the personal ledger control accounts of Gaiway Ltd. at 31st December 1977
were as follows：
Dr.$ Cr.$
Bought Ledger 96 56,900
Sales Ledger 97,550 48

The following transactions take place during 1978：

$
Purchases 194,720
Sales (including $2,540 cash sales) 251,160
Payments to suppliers 216,100
Allowances made by suppliers 2,880
Interest charged to customers 150
Receipts from credit customers (including $250 cheque dishonoured) 260,090
Bad debts written off (including dishonoured cheque) 1,260
Discounts received 2,520
Discounts allowed 5,860
Refunds of customer’s overpayment 370

Debit balances on suppliers’ accounts at 31st December 1978 amount to $150, and credit
balances on customers’ accounts are $230.
Prepare Galway’s sales ledger control account and bought ledger control account for 1978:
carry down the closing balances.

Sales Ledger Control

1978 $ 1978 $
1/1 Balance b/d 97550 1/1 Balance b/d 48
Sales (251160 – 2540) 248620 Bank 260090
Interest charged 150 Bad Debts 1,260
Dishonoured cheques 250 Discounts Allowed 5,860
Refunds 370 Balance c/d 79,912
Balance c/d 230
347,170 347,170

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 Advanced-Level

Purchases Ledger Control

1978 $ 1978 $
1/1 Balance b/d 96 1/1 Balance b/d 56900
Bank 216100 Purchases 194720
Allowance received 2800 Balance c/d 150
Discounts received 2520
Balance c/d 30174
251,770 251,770

Exercise Four
Retailer Multiples Ltd. maintains its credit customer accounts by machine methods. The
debtors ledger is divided into four sections (i) A to F; (ii) G to M; (iii) N to S; and (iv) T to Z; each
section being “billed” on a specified day of the calendar month. Section (iii) is billed on the 21st of
the month and the following details refer to transactions during the month ended 21st June 1981:

$
Debtor balances at 22nd May 1981 1,320
Creditor balances at 22nd May 1981 57
Allowances given against disputed debts 120
Credit Sales during the month 10,583
Irrecoverable balances transferred to Bad Debts account 66
* Balances referred to Debt Collectors 92
Cash and cheques received during the month 8,975
* “Service Charges” added to unpaid accounts 104
Credit Notes issued during the month in respect of sales goods returned by 493
customers
Dishonoured cheques 50
Cash refunds to customers 20
“Pre-List” total of debtor balances at 31st June (debit balances only) 2,445

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Confirmed credit balances on customer accounts at 21st June 1981 28

During the month a customer named Minskip complained that he had been charged with a bill
for $21, which should have been debited to another customer called Nimsky. No adjustment had
been made in the sales ledger although the error had been accepted.
Another customer called Simonds, complained that his account had been debited in error with
$200 being the sale of a television set which he had agreed to buy under a hire purchase agreement
and not through his monthly accounts. He had also paid the deposit of $40, which had been
credited to his accounts.
Required:
(a) To write up the Control Account for Section (iii) of the Debtors ledger, making the necessary
adjustments for the errors given above and showing the amount to be transferred to the debit or
credit of Suspense Account pending internal audit of the Section.
(b) Comment on the circumstances under which the two items marked with an asterisk might
arise.

Sales Leger Control (Section III)

$ $
Balance b/d 1320 Balance b/d 57
Sales 10,583 Allowances 120
Service Charges 104 Bad Debts 66
Dishonoured cheques 50 Sales Returns 493
Refunds 20 Cash & Cheques Received 8975
Suspense (b.f.) 88
Bal c/d 28 Bal c/d 2306
12,105 12,105

Workings:
List of debtors
$
Balance as per unadjusted balance 2445
Add: Nimshky 21
2466
Less: HP creditors 160

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 Advanced-Level

2306

Exercise Five
During the course of the audit of Webster & Co. it was found that the net total balances of
$16,460 extracted from the sales ledger on 30 June 19X1 did not agree with the net balance on the
sales ledger control account. On checking, the following errors were discovered, after the
adjustment of which the books balances and the corrected net total of sales ledger balances agreed
with the amended balance on the control account:
(1) Sales ledger balance had been omitted from the list of balances as follow:
.$
Debit 760
Credit 80
(2) A credit balance of $80 in the sales ledger had been listed as a debit balance.
(3) The sales day book had been undercast by $1,000
(4) The list of balances had been overcast by $10.
(5) Smith’s account had been credited with $280 for goods returned by him but no other entry had
been made in the books.
(6) A transfer of $420 from Howard’s account in the purchase ledger to the credit of his account in
the sales ledger had not been entered in the control account.
(7) A balance of $60 owing by Hector had been written off as irrecoverable on 30 June 19X1, and
debited to bad debts, but no entry had been made in the control account.
(8) A cheque for $260 received form Twist had been dishonoured but the entry recording this fact
in the cash book had not been posted to Twist’s account although dealt with in the control
account.
(9) The debit column of West’s account in the sales ledger had been overcast by $100.
You are required to prepare:
(a) A statement reconciling the original net balances extracted from the sales ledger with the
adjusted final balance on the sales ledger control accounts, and
(b) The sales ledger control account showing the necessary adjustments and the balance on
the account before these adjustments.

Statement reconciling the net balances from sales Ledger

$ $
Original net balance 16460
Add: Debit Balance omitted 760
Dishonoured Cheque of Twist 260 1020
17480

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Less: Credit balance omitted 80

Credit balance wrongly posted (2* $80) 160
List of balance overcast 10
Debit balance overcast 100 350
Corrected net balances 17130

Sales Ledger Control

19-1 $ 19-1 $
30/6 Balance b/d 16890 Returns Inwards 280
Sales 1000 Contra 420
Balance c/d 160 Bad Debts 60
Balance c/d (17130 + 160) 17290
17890 17890

Journal
Date Particular Dr. Cr.
1 No entry

2 No entry

3 Sales Ledger Control 1000

Sales 1000

4 No entry

5 Sales Returns 280

Sales Ledger Control 280

6 Purchases Ledger Control 420

Sales Ledger Control 420

7 Suspense 60
Sales Ledger Control 60

8 No entry
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9 No entry

Exercise Six
Kim maintains control accounts in the General Ledger in respect of both debtors and creditors.
The net total of balances extracted from the sales ledger as on 31st March, 1975 amounted to
$50,659 which did not agree with the balance on the Sales Ledger Control Account. On checking,
the following errors were discovered, after the adjustment of which the books balanced and the
correct net total of the Sales Ledger balances agreed with the amended Control Account balance:
(i) Sales return book had been undercast by $1,000.
(ii) $500 for goods sold to Jim had been correctly entered and debited to his account.
The goods were returned by Jim a faulty and the only record in Kim’s book was the crossing
out of the original entry in Jim’s account.
(iii) A credit balance of $60 in the Sales Ledger had been taken out as a debit balance.
(iv) A balance owing by Boon of $1,062 had been written off as irrecoverable on 31st
March, 1975 and debited to bad debts account but no entry had been made in the Control
Account.
(v) A bill receivable for $2,600, received form Hall Oake, had been dishonoured on
maturity on 30th March, 1975. Kim had earlier discounted the bill with Chartered Bank
Limited and received $2,450. The bank debited the account of Kim with $2,700(inclusive of
charges) on 30th March, 1975. The entry recording this fact in the Cash Book had not been
posted to Hall Oake’s Account although dealt with in the Control Account.
(vi) Leng’s account showed a debit balance or $300. On 28th March, 1975 he paid $50
in cash which was recorded in the Petty cash Book, no other entry being made.
Required:
(a) Give the Journal Entries where necessary, to correct these errors.
(b) Prepare a Statement showing the computation of the corrected sales ledger net
balance.
(c) Prepare the Sales Ledger Control Account showing the balances before and after
the correction of errors.
Date Particular Dr Cr
(i) Sales Returns 1000
Sales Ledger Control 1000

(ii) Sales Returns 500

Sales Ledger Control 500

(iii) No Entry

(iv) Suspense 1062

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Sales Ledger Control 1062

(v) No Entry

(vi) Suspense 50
Sales Ledger Control 50

Statement for correction of sales ledger

$ $
Unadjusted balance 50659
Add: Unposted dishonoured bill 2700
53359
Less: Error of pick-up 120
Unrecoreded payment 50 170
53189

Sales Ledger Control

$ $
Balance b/d 55801 Sales Returns (1000 + 50) 1500
Balance c/d 60 Suspense (1062+50) 1112
Balance c/d (53189 + 60) 53249
55801 55801

Exercise Seven
National Industries Limited maintains subsidiary ledgers for debtors and creditors and control
accounts in the General Ledger. On October 31, 1976, Debtors and Creditors Control Accounts had
balances of $36,375 and $19,452 respectively. The following adjustments are to be made:
(1) Two outstanding debtors accounts (Lim $70, Rex$95) have been investigated. Lim’s
account represents the cash discount which was disallowed. It is decided to allow this claim
and to write-off Rex’s debt as irrecoverable.
(2) Peter has returned goods previously invoiced to him at $110. He complains that the
quality is inferior and it is decided to make an allowance in full.
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(3) Seng has purchased goods for $155. His account in the creditors ledger stands at $225.
Contra this purchase against the balance in the Creditors Ledger.
(4) The account of Lee Soon had been charged $427 in error in respect of a sale for $472 to
Lim Soon.
(5) Credit for purchase of goods from Lilly White, $250 has been posted to the wrong side in
his ledger account.
(6) A note receivable for $1,000 drawn by a customer, Jim, in settlement of the balance in his
ledger account and accepted by National Industries Limited, was indorsed and delivered to a
supplier, Jack. Jack took it in full settlement of $950 due to him. The bill, which was
subsequently dishonoured on maturity, had to be met by National Industries Limited as
indorser and this has not yet been recorded in the books.
Required:
(a) Prepare the journal entries for the necessary adjustments in the Control Accounts and
Subsidiary Ledgers.
(b) Show how the Debtors and Creditors Control Accounts would appear after the
adjustments have been entered.

Date Particular Dr Cr
(1) Discounts allowed 70
Bad debts 95
Debtors Control Account 165

(2) Returns inwards 110

Debtors Control Account 110

(3) Creditors Control Account 155

Debtors Control Account 155

(4) No Entry

(5) No Entry
(Assume Sales Day book no error – Control no error)
(Only the subsidiary ledger incorrect)

(6) Debtors Control Account 1000

Creditors Control Account (not yet paid) 1000

Debtors Control Account

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$ $
Balance b/d 36375 Discounts allowed 70
Bill receivable - dishonoured 1000 Bad debts 95
Returns inwards 110
Contra 155
Balance c/d 36945
37375 37375

Creditors Control Account

$ $
Contra 155 Balance b/d 19452
Balance c/d 20297 Indorsed bill receivable- dishonoured 1000
20452 20452

Exercise Eight
The control accounts of Rainbow Ltd are an integral part of the double entry, and the
individual ledger balances are reconciled periodically with the control accounts. The Draft Trading
and Profit and Loss Account was prepared for the year to 30 June 1977 but the control accounts had
not been reconciled. The abridged trial balance at 30 June 1977 was as follows:
Dr. Cr.
Sales ledger control account 26,200
Purchase ledger control account 33,154
Net profit per draft accounts 10,273
Other balances 253,272 236,045
279,472 279,472
The individual balances extracted from the sales ledger amounted to $26,473 (net) and from
the purchase ledger amounted to $32,779(net).
On checking the accounting records, the following errors were discovered:
1. The sales day book had been undercast by $100.
2. A transfer of $250 from Red’s account in the purchase ledger to the credit of his account
in the sales ledger had not been entered in either control account.
3. No entry had been made in the records for goods sold to Green on 30 June 1977 invoiced
to him at $275. Green collected the goods on 1 July 1977 and thus they had been
included in the stockholding on 30 June; the goods cost $230.
4. No entry had been made in the records for defective goods returned on 28 June to a
supplier Indigo Ltd which had been invoiced to Rainbow Ltd at $483. A credit note for
the full amount has been agreed.
5. A cheque of $723 received on 30 June from Orange, a customer, had been correctly

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recorded in the cash book but no posting had been made to the sales ledger account of
Orange.
6. A debt owing by Yellow had been written off in the sales ledger as irrecoverable on 31
March 1977 but no entry had been made in the journal or the control account.
7. A discount received from the supplier Purple Ltd had been entered only in the supplier’s
personal account.
After the correction of the foregoing errors, the corrected net total of ledger balances agreed
with the amended balances on the control accounts.
You are required to:
1. Adjust the sales and purchase ledger control accounts and show the reconciliation of the
closing balances with the individual aggregate balances extracted from the purchase and
sales ledgers, and
2. Compute a revised net profit for the year.

Sales Ledger Control Account

$ $
Balance b/d 26200 Contra 250
Sales (sales day book undercast) 100 Bad debts 300
Sales (unrecorded) 275 Balance c/d 26025
26575 26575

Purchases Ledger Control Account

$ $
Contra 250 Balance c/d 33154
Returns Outwards 483
Discounts received 125
Balance c/d 32296
33154 33154

Statement of revised net profit

$ $
Net profit before adjustment 10273
Add: Sales (undercast) 100
Unrecorded sales 275
Returns Outwards (unrecorded) 483
Discounts Received (unrecorded) 125 983
11256
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 Advanced-Level

Less: Overstated Ending Stock 230

Bad Debts 300 530
Revised Net Profit 10726

Exercise Nine
Nostla Products Limited includes in its accounting system a purchases ledger control account
and a sales ledger control account. The company’s trial balance at 30 November 19X9 included the
following entries:
Dr. Cr.
Purchases ledger control account 1,242 24,647
Sales ledger control account 39,650 941

The following is a summary of the company’s transactions with its suppliers and customers
during the year ended 30 November 19X0:
$
Goods purchased and received form suppliers
Gross invoice value before trade discounts 210,786
Net invoice price after trade discounts 176,410
Goods returned to suppliers
Gross invoice value before trade discounts 16,476
Net invoice price after trade discounts 15,113
Amount due to suppliers
Total full amount 163,300
Settled by payment of 159,400
Goods sold to customers
Gross invoice value before trade discounts 344,700
Net invoice price after trade discounts 310,690
Goods returned from customers
Gross invoice value before trade discounts 7,600
Net invoice price after trade discounts 6,764
Amount due from customers

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 Advanced-Level

Full amount 307,610

Settled by receipt of 306,540
Customers debts written off as irrecoverable 970

It has been decided to create a provision for doubtful debts at 30 November 19X0 of 2½% of
the total amount due from customers indebted to the company; there was no provision for doubtful
debts in the trail balance at 30 November 19X9.
t 30 November 19X0 both the purchases ledger and the sales ledger included accounts with J.
Dyke:
$
Purchases ledger 1,630 Credit
Sales ledger 1,268 Debit
It has been decided to set off J. Dyke’s balance in the sales ledger against his balance in the
purchased ledger.
The purchases ledger at 30 November 19X0 included the following accounts with debit
balances:
$
G. Graham 930
L. Brooke 420
The sales ledger at 30 November 19X0 included the following accounts with credit balances:
$
P. Hilltop 230
H. Pumpkin 83
K. Bunson 500
Required:
(a) The following accounts for the year ended 30 November 19X0 in the books at Nostla
Products Limited:
Purchases ledger control account
Sales ledger control account
Note: The balances outstanding on 30 November 19X0 should be brought down.
(b) (i) The journal entry for the creation of the provision for doubtful debts at 30 November
19X0. Note: The journal narrative is required.
(ii) Explain the relationship between the provision for doubtful debts and the sales ledger
control account.
Purchases Ledger Control Account
$ $
Balance b/d 1242 Balance b/d 24647
Returns Outwards 15113 Purchases 176410
Bank 159400 Balance c/d (930 + 420) 1350
Discounts Received 3900
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 Advanced-Level

(163300-159400)
Contra 1268
Balance c/d 21484
202407 202407

Sales Ledger Control Account

$ $
Balance b/d 39650 Balance b/d 941
Sales 310690 Returns inwards 6764
Balance c/d 813 Bank 306540
Discount Allowed 1070
(307610 - 306540)
Contra 1268
Bad debts 970
Balance c/d 33600
351153 351153

Date Particular Dr Cr
Profit and Loss 33600x 2.5%) 840
Provision for bad debts 840

Debtors Dr. 33600 Creditors Dr. 1350

Cr. 813 Cr. 21484

Balance Sheet (Extract)

Current Assets
Debtors (33600+1350) 34950
Less: Provision for bad debts 840 34110

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 Advanced-Level

Exercise Ten
During the course of the audit of Grey & Co. it was found that the net total balances of
$28,200 extracted from the sales ledger on 31 December 19X2 did not agree with the net balance on
the sales ledger control account on checking, the following errors were discovered, after the
adjustment of which the books balanced and the corrected net total of sales ledger balances agreed
with the amended balance on the control account:
(1) A debit balance of $860 and credit balances amounting to $140 had been omitted form the
list of balances.
(2) The sales returns book had been undercast by $1,000.
(3) The list of balances had been overcast by $100.
(4) A balance owing by Silver of $180 had been written off as irrecoverable on 31 December
19X2 and debited to bad debts, but no entry had been made in the control account.
(5) A debit balance of $140 in the sales ledger had been listed as a credit balance.
(6) No entries had been made in the control accounts in respect of a transfer of $410 standing
to the credit to Green’s account in the purchase ledger to his account in the sales ledger.
(7) Black’s accont had been credited with $340 for goods returned by him but no other entry
had been made in the books.
(8) A discount of $50 allowed and a corresponding amount entered in the discounts received in
the cash book and posted to Brown’s account in the purchase ledger and included in the
total of discounts received.
You are required to prepare:
(a) A statement reconciling the original net balances extracted from the sales ledger with
the adjusted final balance on the sales ledger control account, and
(b) The sales ledger control account showing the necessary adjustments and the balance
on the account before and after these adjustments.
Statement for correction of sales ledger
$ $
Balance extracted before adjustment 28200
Add: Debit balance omitted 860
Debit balance listed as credit ($140*2) 280
Brown’s discount disallowed 50 1190
27010
Less: Credit balance omitted 140
List overcast 100 240
Balance after adjustment 29150

Sales Ledger Control Account

$ $

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 Advanced-Level

Balance before adjustment 31170 Balance b/d 140

Discounts allowed overstated 50 Sales Returns (unrecorded) 340
Balance c/d 140 Sales Returns (undercast) 1000
Bad Debts 180
Contra – Green’s account 410
Balance c/d (29150+140) 29290
31360 31360

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