CONTROL ACCOUNTS

2012-7-9

Control account and ledger account

1.Definition of control accounts

A control account is an account maintained in the general ledger that records only the total value of different subsidiary ledgers.

2. Terminologies
Receivables control account =sales ledger control account =total receivables account Payables control account =purchases ledger control account =total payables account

After class reading

A control account is an account in the nominal ledge in which a record is kept of the total value of a number of similar but individual items. Control accounts are used chiefly for trade receivables and payables. A receivables control account is an account in which records are kept of transactions involving all receivables in total .The balance on the receivables control account any time will be the total amount due to the business at that time from its receivables. A payables control account is an account in which records are kept of transactions

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involving all payables in total, and the balance on this account at any time will be the total amount owed by the business at that time to its payables. Although control accounts are used mainly in accounting for receivables and payables, they can also be kept for other items, such as inventories, wages and salaries, and cash. The first important idea to remember, however, is that control account is an account which keeps a total record for a collective item (i.e. receivables), which in reality consists of many individual items (e.g. individual trade accounts receivables).

3. Control accounts and customers /suppliers individual ledger accounts (personal accounts)
1. The individual customers ledger accounts are kept in the receivables ledger, and the amount owed by each customer will be a balance on his personal account. The amount owed by the entire customer together should agree with the totals posted in the receivables control account. 2. Similarly, the individual suppliers ledger accounts are kept in the payables ledger, and the amount owed to each supplier will be a balance on his personal account. The totals posted in a payables control account should agree with the total of all the individual suppliers accounts. 3. In a trial balance, the closing total of the payables or receivables control account will be taken. The customers or suppliers closing balances will not be taken to the trial balance. These individual accounts do not form part of the double entry book keeping system, but are memorandum accounts
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4. Illustrative example

Illustrative example

(a) SDB refer to a page in the sales day book (b) RL refer to a particular account in the receivables ledger (c) NL, refer to a particular account in the nominal ledger (d)CB, refer to a page in the cash book At 1 July 20X2, the Outer business company had no trade accounts receivables. During July, the following transactions affecting credit sales and customers occurred. (a) July 3 :invoiced Twinkle for the sale on credit of hardware goods :$100 (b) July 11: Invoiced Sunny for the sale on credit of electrical goods :$150 (c) July 15: invoiced Beta for the sale on credit of hardware goods: $250 (d) July 10: received payment for Twinkle of $90, in settlement of his debt in full, having taken a permitted discount of $10 for payment within seven days. (e) July 18: received payment of $72 from Sunny in part settlement of $80 of his debt; a discount of $8 was allowed for payment within seven days of invoice. (f) July 28:received a payment of $120 from Beta ,who was unable to claim any discount Account numbers are as follows: RL 4 Personal account: Twinkle RL 9 Personal account: Sunny RL 13 Personal account: Beta
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NL 6 Receivables control account NL 7 Discounts allowed NL 21 Sales: hardware NL 22 Sales: electrical NL 1 Cash at bank The accounting entries would be as follows:
Date 20X2 3 11 15 Name Peter Sunny Beta SALES DAY BOOK Ref Total $ RL 4 Dr 100.00 RL 9 Dr 150.00 RL 13 Dr 250.00 500.00 NL 6 Dr SDB 35 Hardware $ 100.00 250.00 350.00 NL 21 Cr Electrical $ 150.00 150.00 NL 22 Cr

Note .The personal accounts in the receivables ledger are debited on the day the invoices are sent out. The double entry in the ledger accounts might be made at the end of each day, week or month; here it is made at the end of the month, by posting from the sales day book as follows:

$ DEBIT NL 6 Receivables control account Sales: hardware Sales: electrical 500

CREDIT NL 21 NL 22

350 150

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CASH BOOK EXTRACT Receipts July 20X2

Date Narrative Ref Total Discount allowed 20x2 July 10 18 28 Peter Sunny Beta RL 4 Cr RL 9 Cr RL 13 Cr $ 90.00 72.00 120.00 282.00 NL 1 Dr 18.00 NL 7 Dr $ 10.00 8.00

CB 23
Accounts Receivables $ 100.00 80.00 120.00 300.00 NL 6 Cr

At the end of July, the cash book is posted to the nominal ledger

$ Debit Cash at bank Discount allowed CREDIT Receivables control account 282.00 18.00 300.00

The personal accounts in the receivables ledger are memorandum accounts, because they are not a part of the double entry system.

MEMORANDUM RECEIVALES LEDGER

A/C NO :RL 4

Twinkle
Date 20X2 July 3
5

Narrative

Ref

Date 20X2

Narrative

Ref

Sales

SDB 35

100.00

July 10

Cash

CB 23

90.00

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2012-7-9

Discount 100.00

CB 23

10.00 100.00

Sunny
Date 20X2 July 11 Sales SDB 35 150.00 Narrative Ref $ Date 20X2 July 18 Cash discount July31 150.00 Aug 1 Balance b/d 70.00 Balance Narrative

A/C NO :RL 9

Ref

CB 23 CB 23 c/d

72.00 8.00 70.00 150.00

Beta
Date 20X2 July 15 Sales SDB 35 July31 250.00 Aug 1 Balance b/d 130.00 250.00 Narrative Ref $ Date 20X2 July 28 Cash discount Balance Narrative

A/C NO :RL 13 Ref $

CB 23

120.00

c/d

130.00 250.00

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2012-7-9

In the nominal ledger, the accounting entries are made from the books of original entry to the ledger accounts, in this example at the end of the month. NOMINAL LEDGER(EXTRACT) RECEIVABLES LEDGER CONTROL ACCOUNT A/C NO :NL 6

Date 20X2 July 31

Narrative

Ref

Date 20X2

Narrative

Ref

Sales

SDB 35

500.00

July 31

Cash discount

and CB 23

300.00

July31 500.00 Aug 1 Balance b/d 200.00

Balance

c/d

200.00 500.00

Note. At 31 July the closing balance on the receives control account ($200) is the same as the total of the individual balances on the personal accounts in the receivables ledger ($0+$70+$130)

DISCOUNT ALLOWED Date 20X2 July 31 Receivables CB 23 18.00 Narrative Ref $ Date

A/C NO :N L 7 Narrative Ref $

CASH CONTROL ACCOUNT Date Narrative Ref $ Date

A/C NO :N L 1 Narrative Ref $

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20X2 July 31 Cash received CB 23 282.00

SALES: HARDWARE Date Narrative Ref $ Date 20x2 July 31 Receivables Narrative

A/C NO :N L 21 Ref $

SDB 35

350.00

SALES:ELECTRICAL Date Narrative Ref $ Date 20x2 July 31 Receivables Narrative

A/C NO :N L 22 Ref $

SDB 35

150.00

If we take the balance on the accounts shown in this example as at 31 July 20X2, the trial balance is as follows:

TRIAL

BALANCE Debit $ Credit $

Cash (all receipts )

8

282

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Receivables Discount allowed Sales: hardware Sales: electrical

200 18 350 150 500 500

The trial balance is shown here to emphasize the point that a trial balance includes the balances on control accounts, but excludes the balances on the personal accounts in the receivables ledger and payables ledger.

5. Summary

Receivables /payables control accounts Maintained in the general ledger Impersonal accounts Total amount owed by the customers Total amount owed to the suppliers Part of double entry, the closing balances will be taken to the trial balance.

Individual customers /suppliers ledger accounts Maintained in receivables /payable ledgers Personal accounts the amount owed by individual customer the amount owed to individual supplier Not part of double entry, if control accounts are maintained Memorandum accounts