Control Accounts

Control Accounts

Control Accounts

If the trial balance is not balanced, it indicates a mistake in the transaction recording. To discover this mistake, one must go through all of the transactions for the whole year. Now, if the company is tiny, it will be simpler to tell the difference. However, if the company is huge, it might be hard to see the difference. To address this issue, a check method is created in which the ledger accounts are divided into smaller groups and a trial is produced for each group.

Typically, as a company grows, so do the number of suppliers (creditors) and consumers (debtors). If we create a separate ledger account for each creditor and debtor, the general ledger and trial balance would grow too large to handle. So, in order to keep things simple, one ledger is kept for Debtors and one for Creditors.

The Debtors Ledger is also known as the Total Debtors Ledger or the Sales Ledger Control Account (as Credit sales are recorded in this account). 

Total Creditors Ledger or Purchase Ledger Control Account is another name for the Creditors Ledger (as Credit purchases are recorded in this ledger). 

In General Ledger, one account is held for all Debtors, called the Debtors Control Account, and another for Creditors, called the Creditors Control Account.

Principle of Control Accounts

The basic principle behind control accounts is as follows:

The closing balance of an account may be computed if the beginning balance of the account, as well as the amount of deductions and additions entered into the account, are known.

The same technique is used for the whole ledger; the total of opening balances plus additions and deductions made during the period should equal the total of closing balances.

Individual creditor and debtor accounts are therefore opened in the total creditors’ and total debtors’ ledgers, respectively, and their summarized numbers are reported in the appropriate Control Accounts in General Ledger.

The preceding idea can be illustrated as follows:

Here is the example of Total Debtors Account.

Total of opening balance Dr          30000

Add: a total of debit entries          75000

                                                  105000

Less: a total of credit entries         (20000)

                                                   85000

In the general ledger, the balance of the Debtors control account should be Rs. 85000. If this is not the case, then there is an issue with the recording method that has to be fixed.

Information for Control Accounts – Debtors

We used some information in the preceding illustration. We will now investigate the sources from which the information is gathered.

Type of InformationSource of Information
Opening balance of the debtorList of debtor balances as of the preceding period’s conclusion.
Credit SalesIndividual transactions are recorded in a separate book. The totals are taken from this book.
Sales ReturnIndividual transactions are recorded in a separate book. The totals are taken from this book.
Cheque/Cash receivedThe cash and bank book are used to generate a list of receipts.
Closing balanceThis is the balancing figure, which may also be found in the list of debtors’ individual balances.

Consider the data:

Sales Journal

DateInvoiceNameAmount
xxxxX10000
xxxxY15000
xxxxZ12000
Total37000

The following item will be made in the Debtors Control Account to reflect the total of the sales journal:

Debtors control Account           37000   (Debit)

       Sales Account                   37000  (Credit) 

It should be noted that cash sales are not included in this procedure. They are recorded immediately in the general ledger.

Information for Control Accounts – Creditors

The information flow in the case of creditors is identical to that of debtors, as shown below:

Type of InformationSource of Information
Opening balance of the debtorList of creditor balances as of the preceding period’s conclusion.
Credit PurchasesTo record individual transactions, a separate book (purchase journal) is kept. The totals are taken from this book.
Purchase ReturnTo record individual transactions, a separate book of purchase return journal is kept. Totals are taken from this book.
Cheque/Cash receivedThe list of payments is derived from the cash and bank book. Alternatively, a separate column in cash and bank books is kept for this purpose.
Closing balanceThis is the balancing figure, which may also be found in the list of debtors’ individual balances.

Consider the data: 

Purchase Journal

DateInvoiceNameAmount
xxxxA5000
xxxxB9000
xxxxC8000
Total22000

The total of the purchase journal will be entered in the Creditors Control Account using the following entry:

Purchase Account                            22000   (Debit)

       Creditors Control Account       22000  (Credit) 

It should be noted that cash purchases are not included in this procedure. They are recorded immediately in the general ledger.

Example 1:

Create a Creditors Control Account using the following information and calculate the creditors’ closing balance on April 30.

April 01, Opening balance         40,000

Totals for the month of May

Total credit Purchases          32000

Purchase return                   6000

Cheques and cash paid        28000

Discount received                 2000

Example 1

Example 2:

Create a Debtors Control Account using the following information and calculate the creditors’ closing balance on April 30.

April 01,  Opening Balance           75000

Totals for the month of May:

Total Credit Sales (Sales journal)              26000

Return Inward (Sales Inward Journal)        3000

Cheques and cash received                      46000

Discount allowed                                        3000

Example 2

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