C hapter 27: Control accounts

Contents of chapter
This chapter examines the need for control accounts and how to draw them up. It also considers the sources of
information for control accounts.

Notes for teachers

Control accounts are widely used for management and control purposes in business organisations.
1

They are simply totals of all the entries which have been made in the ledger accounts. All entries are
2
made on the same sides of the control account as the individual items would be in the ledger itself.

The sources of information to be entered in the control accounts mainly lie in the books of original entry.
3

Debtors’ accounts in the sales ledger normally leave debit balances. However, we can sometimes get
4
credit balances in the sales ledger. Reasons may be:
(i) A debtor has overpaid his/her account.
(ii) A debtor settles his/her account and later returns goods to us.
(iii) He/She has paid a deposit on or paid us in advance for some goods which have not yet been sent to
him/her.
Thus a sales ledger control account may show both debit and credit balances brought forward or carried
forward.

Normally, purchases ledger balances are credit balances. Sometimes you can see a debit balance on a
5
creditor’s account. This occurs when:
(i) We have overpaid the supplier’s account.
(ii) We settle his/her account and later return goods to him/her.
(iii) We have paid a deposit on or paid in advance for goods yet to be delivered.
Thus a purchases ledger control account may show both debit and credit balances brought forward or
carried forward.

Contra accounts in sales and purchases ledgers occur when the same firm is both a supplier and a
6
customer.

If the total balances of a control account do not agree, or the balance of the control account does not
7
equal the balance of the corresponding ledger, error(s) must have been made somewhere and will have to
be located and corrected.

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Answers to MCQs and exercises
27.1 D 27.2 A 27.3 B 27.4 B 27.5 A

27.6
Sales Ledger Control
20X7 $ 20X7 $
Mar 1 Balance b/f 12,490 Mar 31 Returns inwards 1,120
" 31 Sales 24,610 " 31 Cash and bank 16,380
" 31 Balance c/f 19,600
37,100 37,100

27.7X
Purchases Ledger Control
20X8 $ 20X8 $
May 31 Returns outwards 1,220 May 1 Balance b/f 19,320
" 31 Bank 22,390 " 31 Purchases 31,745
" 31 Balance c/f 27,455
51,065 51,065

27.8
Sales Ledger Control
20X8 $ 20X8 $
Mar 1 Balance b/f 6,708 Mar 31 Discounts allowed 300
" 31 Sales 11,500 " 31 Bank and cash 8,970
" 31 Bad debts 115
" 31 Returns inwards 210
" 31 Balance c/f (balancing figure) 8,613
18,208 18,208

27.9X
Purchases Ledger Control
20X4 $ 20X4 $
Nov 30 Discounts received 240 Nov 1 Balance b/f 7,560
" 30 Returns outwards 355 " 30 Purchases 11,100
" 30 Cash and bank 9,850
" 30 Balance c/f (balancing figure) 8,215
18,660 18,660

27.10
Sales Ledger Control
20X5 $ 20X5 $
May 1 Balance b/f 6,420 May 31 Cash and bank 10,370
" 31 Sales 12,800 " 31 Discounts allowed 395
" 31 Balance c/f 50 " 31 Set-off: Purchases ledger 145
" 31 Balance c/f (balancing figure) 8,360
19,270 19,270

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 27.11X
(a) (i) It keeps a check on the arithmetical accuracy of entries in the sales and purchases ledgers. See (c) below.
(ii) It enables quick check, for management control, on totals of debtors and creditors without waiting for all
accounts to be balanced off.

(b) He can set off the balances between the particular debtor’s account in the sales ledger, and the creditor’s account
of that person in the purchases ledger. Only the net indebtedness will have to be paid, or received.

(c) No. Errors may still occur when there are:

(i) Complete omissions of sales, purchases, returns inwards or outwards from the books. No debits or credits
have been made.
(ii) Complete omissions from the books of cash/cheques received or cash/cheques paid out.
(iii) Errors of commission, e.g. sales to K Wong debited to K Woo.
(iv) Compensating errors.
(v) Errors of original entry, e.g. sales $95 entered as both debit and credit items as $59.
(vi) Other items, such as debts written off as bad debts in error.

27.12
Purchases Ledger Control
$ $
Returns outwards 2,648 Balance b/f 11,874
Bank 146,100 Purchases 154,562
Petty cash 78
Discounts received 2,134
Set-offs: Sales ledger 1,036
Balance c/f 14,530
*166,526 *166,436
*Error: Difference between two sides $90.

Sales Ledger Control

$ $
Balance b/f 19,744 Returns inwards 4,556
Sales 199,662 Bank and cash 185,960
Discounts allowed 5,830
Set-offs: Purchases ledger 1,036
Balance c/f 22,024
219,406 219,406

27.13X
(a) Sales Ledger Control
20X5 $ 20X5 $
Dec 31 Balance b/f 4,560 Dec 31 Sales (1) 640
Sales (2) 50 Balance c/f 3,970
4,610 4,610

(b) Statement of Corrected Sales Ledger Balances as at 31 December 20X5

$ $
Original balances 3,770
Add (2) Sales undercast 50
(4) Balance omitted 330 380
4,150
Less (3) Returns inwards understated 180
Corrected balance 3,970
Note: Item (5) did not affect the sales ledger nor the sales ledger control account.

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27.14
(a) Purchases Ledger Control
20X6 $ 20X6 $
Mar 31 Purchases (3) 120 Mar 31 Balance b/f 5,850
" 31 Balance c/f 5,960 " 31 Purchases (1) 230
6,080 6,080

(b) Statement of Purchases Ledger Balances as at 31 March 20X6 (before corrections)

$ $
Original balances (balancing figure) 4,950
Add (2) Purchases wrongly debited to creditor’s account ($870 × 2) 1,740
6,690
Less (3) Purchases overstated 120
(4) Total of balances overcast 610 730
Corrected balances as per control account 5,960
Note: Item (5) did not affect the purchases ledger and its control account.

27.15X
(a) Sales Ledger Control
$ $
Balance b/f 46,540 Balance b/f 470
Sales (2) 90 Sales (3) 1,800
Balance c/f 470 Bad debts (5) 680
Purchases ledger control (6) 3,600
Balance c/f 40,550
47,100 47,100

Purchases Ledger Control

$ $
Balance b/f 230 Balance b/f 38,220
Purchases (1) 290 Purchases (3) 1,800
Sales ledger control (6) 3,600 Balance c/f 230
Balance overcast (7) 90
Balance c/f 36,040
40,250 40,250

(b) Statement Showing the Revised Balances Total of the Sales Ledger
$ $
Adjusted debit balances total 40,550
Add (3) Purchases wrongly recorded as sales 1,800
(6) Contra from purchases ledger 3,600
(8) Credit balance wrongly listed as a debit balance 470 5,870
46,420
Less (2) Sales understated 90
Debit balances before corrections 46,330
Credit balances before corrections 0

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 Statement showing the Revised Balances Total of the Purchases Ledger
$ $
Adjusted credit balances total 36,040
Add (6) Contra from sales ledger 3,600
39,640
Less (3) Purchases wrongly recorded as sales 1,800
(4) Purchases wrongly debited 1,700 3,500
Credit balances before corrections 36,140
Debit balances before corrections 230

27.16
(a) Calculation of the Revised Total of the Sales Ledger Balances
$ $
Total of sales ledger balances before adjustments 147,520
Add (7) Dishonoured cheque 6,280
(10) Debit balance omitted 75 6,355
153,875
Less (5) Sales invoice entered twice 8,150
Revised total of the sales ledger balances 145,725

Calculation of the Revised Total of the Purchases Ledger Balances

$ $
Total of purchases ledger balances before adjustments 118,230
Add (8) Purchase invoice not posted 900
119,130
Less (3) Sales ledger (contra) 1,500
(9) Credit balance included twice 325 1,825
Revised total of the purchases ledger balances 117,305

(b) Sales Ledger Control

$ $
Balance before adjustments 135,125 Discounts allowed omitted (4) 3,450
Sales day book undercast (1) 18,000 Sales invoice entered twice (5) 8,150
Returns inwards books overcast (6) 4,200 Balance after adjustments 145,725
157,325 157,325

Purchases Ledger Control

$ $
Purchases day book overcast (2) 3,420 Balance before adjustments 122,225
Sales ledger control (contra) (3) 1,500
Balance after adjustments 117,305
122,225 122,225

166
27.18X
(a) Calculation of the Revised Total of the Sales Ledger Balances
$ $
Total of sales ledger balances before adjustments 398,195
Add (1) Sales invoices omitted 1,200
(8) Dishonoured cheque 1,280
(10) Debit balance omitted 250 2,730
400,925
Less (5) Purchases ledger (contra) 1,500
(11) Bad debts written off 2,900 4,400
Revised total of the sales ledger balances 396,525

Calculation of the Revised Total of the Purchases Ledger Balances

$ $
Total of purchases ledger balances before adjustments 373,415
Add (2) Purchases invoice understated ($3,750 – $3,570) 180
373,595
Less (5) Sales ledger (contra) 1,500
(9) Credit balance included twice 480 1,980
Revised total of the purchases ledger balances 371,615

(b) Sales Ledger Control

$ $
Balance before adjustments 400,875 Discount allowed omitted (6) 2,450
Sales invoices omitted (1) 1,200 Returns inwards book undercast (7) 4,200
Sales day book undercast (3) 4,000 Bad debts written off (11) 2,900
Balance after adjustments 396,525
406,075 406,075

Purchases Ledger Control

$ $
Discount received omitted (6) 1,000 Balance before adjustments 362,175
Balance after adjustments 371,615 Purchases invoice understated (2) 180
Purchases day book undercast (4) 10,260
372,615 372,615

167