Contents: 9 sections
Cambridge IGCSE Accounting 0452 · Core and Extended
Syllabus points
- Prepare sales ledger and purchases ledger control accounts.
- Explain the purposes of control accounts.
- Explain the uses and the limitations of control accounts.
What a control account does
A control account is a summary account holding the totals of what a personal ledger holds in detail.
The sales ledger control account should equal the sum of all the individual customer balances. The purchases ledger control account should equal the sum of all the supplier balances. If they do not, there is an error, and the control account tells you which ledger to look in.
The check works because the same information reaches two places by two different routes: the control account is fed from the totals in the books of prime entry, while the personal accounts are fed from the individual entries.
Sales ledger control account
An asset, so its normal balance is a debit.
| Debit (what customers owe goes up) | Credit (what customers owe goes down) |
|---|---|
| Opening balance of receivables | Money received from customers |
| Credit sales | Discount allowed |
| Dishonoured cheques | Sales returns |
| Interest charged to customers | Irrecoverable debts written off |
| Refunds to customers | Contra with the purchases ledger |
Purchases ledger control account
A liability, so its normal balance is a credit.
| Debit (what is owed goes down) | Credit (what is owed goes up) |
|---|---|
| Payments to suppliers | Opening balance of payables |
| Discount received | Credit purchases |
| Purchases returns | Interest charged by suppliers |
| Contra with the sales ledger | Refunds received from suppliers |
What never goes in
Three items look as if they belong and do not, and questions include them on purpose.
- Cash sales and cash purchases. Control accounts cover credit transactions only, because only credit transactions create receivables and payables.
- The allowance for irrecoverable debts. This is an estimate held in its own account. A debt actually written off does appear in the control account; the allowance against the remaining balances does not.
- Provision for depreciation and other general ledger items that have nothing to do with customers or suppliers.
Contra entries
A contra, or set-off, happens when the same business is both a customer and a supplier. Instead of two payments crossing, the smaller balance is set against the larger.
- Debit the purchases ledger control account, credit the sales ledger control account.
So a contra reduces both, appearing on the credit side of the sales ledger control account and the debit side of the purchases ledger control account. Only the smaller of the two balances can be set off.
A worked control account
Opening receivables $24 600. During the month: credit sales $41 200, cash sales $5 800, receipts from customers $38 500, discount allowed $900, sales returns $1 700, irrecoverable debts written off $400, a contra of $1 100.
Debit side: 24 600 plus 41 200, which is $65 800. The cash sales are left out.
Credit side: 38 500 plus 900 plus 1 700 plus 400 plus 1 100, which is $42 600.
The closing balance is 65 800 minus 42 600, which is $23 200, a debit balance carried down.
Purposes and limitations
Control accounts give the total of receivables and payables instantly, without adding up every personal account. They locate errors to one ledger. They allow a trial balance to be prepared from the general ledger alone. And because a control account is normally kept by someone other than the ledger clerk, they make fraud harder.
They are a check, not a proof. Several errors leave the control account agreeing perfectly with the ledger:
- An error made in the book of prime entry, which feeds both the total and the individual account, so both are wrong in the same way.
- A transaction omitted entirely.
- An entry posted to the wrong customer, since the total is unchanged.
- Compensating errors that cancel out.
Common mistakes
- Including cash sales or cash purchases.
- Putting discount allowed on the debit side of the sales ledger control account.
- Including the allowance for irrecoverable debts.
- Putting the contra on the wrong side of one account.
- Treating the sales ledger control account as a credit balance.
- Saying an agreeing control account proves the ledger is correct.
- Leaving out the dishonoured cheque, which is a debit in the sales ledger control account because the customer owes the money again.