Control accounts Cambridge IGCSE Accounting revision
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In plain words
A sales ledger may hold hundreds of customers' accounts. A control account is one account that summarises them all, built from totals. If its balance agrees with the total of the individual balances, the ledger is very probably right.
7 things to know
- A sales ledger control account summarises all the credit customers' accounts. A purchases ledger control account summarises all the credit suppliers' accounts. They are written up from the totals in the books of prime entry.
- Purposes: to check the arithmetical accuracy of the ledger, to show which ledger an error is in, to give the total of trade receivables or trade payables quickly, and to reduce fraud, since they can be kept by a different person.
- Sales ledger control account, debit side: opening balance, credit sales, dishonoured cheques, interest charged on overdue accounts, refunds paid to customers.
- Sales ledger control account, credit side: sales returns, money received from customers, discount allowed, irrecoverable debts, contra entries.
- Purchases ledger control account, credit side: opening balance, credit purchases, interest charged by suppliers. Debit side: purchases returns, payments to suppliers, discount received, contra entries.
- A contra entry is used when the same business is both a customer and a supplier: the smaller balance is set off against the larger. Debit the purchases ledger control account and credit the sales ledger control account.
- Never included: cash sales, cash purchases, trade discount and the allowance for irrecoverable debts.
Worked example
At the start of the year trade receivables were $8200. During the year: credit sales $31 500, sales returns $900, receipts from customers $28 300, discount allowed $600, irrecoverable debts $450, contra $350. Find the closing balance of the sales ledger control account.
- Debit side: 8200 + 31 500 = 39 700.
- Credit side: 900 + 28 300 + 600 + 450 + 350 = 30 600.
- Closing debit balance = 39 700 − 30 600 = $9100.
Tips and tricks
- Think of the control account as one giant customer. Anything that would go on the debit of a customer's account goes on the debit of the control account.
- A control account may have a small balance on the "wrong" side as well, for example when a customer has overpaid. If the question gives one, show both balances.
It lands in your notebook with its questions as flashcards.
Control accounts: 6 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
From where does the figure for credit sales in a sales ledger control account come?
Totals from the books of prime entry are used.
On which side of the sales ledger control account are irrecoverable debts entered?
They reduce the amount owed by customers.
On which side of the purchases ledger control account are payments to suppliers entered?
They reduce the amount owed to suppliers.
Which item is never entered in a sales ledger control account?
Cash customers never owed the business anything.
How is a contra entry recorded in the control accounts?
Both the amount owed to the business and the amount it owes are reduced.
Opening trade receivables $4000, credit sales $15 000, receipts $13 500, sales returns $500. What is the closing balance?
4000 + 15 000 − 13 500 − 500.
Quiz
6 questions
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Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Control accounts
Cambridge IGCSE Accounting 0452 · 8 marks · papermunch.org
Name ______________________________ Date ______________
State two purposes of a sales ledger control account.[2]
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To check the arithmetical accuracy of the sales ledger. To provide the total of trade receivables quickly. (Also: to help locate errors and to deter fraud.)
A purchases ledger control account has an opening credit balance of $5400. Credit purchases are $22 000, purchases returns $700, payments to suppliers $19 800 and discount received $300. Calculate the closing balance.[4]
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$6600 credit. Credit side: 5400 + 22 000 = 27 400. Debit side: 700 + 19 800 + 300 = 20 800. 27 400 − 20 800.
State two items that do not appear in a sales ledger control account.[2]
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Cash sales and the allowance for irrecoverable debts. (Also: trade discount.)
Answers: Control accounts
- 1. To check the arithmetical accuracy of the sales ledger. To provide the total of trade receivables quickly. (Also: to help locate errors and to deter fraud.)
- 2. $6600 credit. Credit side: 5400 + 22 000 = 27 400. Debit side: 700 + 19 800 + 300 = 20 800. 27 400 − 20 800.
- 3. Cash sales and the allowance for irrecoverable debts. (Also: trade discount.)