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Control Accounts

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Control Accounts

Not all the transactions done in a business are in cash. Now days, businesses do a lot more transactions in credit and thus there is a long list of debtors and creditors.  Since the bulk of entries are made in the accounts of debtors and creditors, these two classes of accounts are taken out of the General Ledger and put in a subsidiary ledger.

Subsidiary ledgers include

Sales Ledger: Which contains all debtors accounts

Purchases Ledger: contains all creditors’ accounts.

This is where control account comes in…

Control account is a summary of all the accounts in the subsidiary ledgers.

The summary of all accounts in the Sales ledger make up the Debtors control account and the summary of all accounts in the Purchase Ledger is known as the Creditors control account.

 

How to make Debtors Control Account

  • Sales transaction takes place
  • It is recorded in the Sales Journal
  • From the Sales Journal entry is posted to the Sales Ledger.

debtors-control-accounts

 

From where do you get information to draw Debtors Control Accounts?

Information

Source

Total Opening Balance

Trial Balance at close of previous period

Total Sales

Sales Journal

Dishonoured Cheques

Cash Book

Discount allowed withdrawn

General Journal

Any charges to debtors

General Journal

Total cash and cheques received from debtors

Cash book

Discount allowed

Cash Book

Returns inwards and allowances

Returns Inwards journal

Bad Debts

General Journal

 

How do we prepare Creditors Control Account?

Also known as Purchases Ledger Control Account

It accounts for all Creditors appearing in the Purchases Ledger.

From where do you get information to draw Creditors Control Accounts?

Information

Sources

Total cash and cheques paid to creditors

Cash Book

Discount received

Cash Book

Returns outwards and allowances

Returns Outwards Journals

Total opening balances

Trial Balance at close of previous period

Total purchases

Purchases Journal

Any charges by creditors

Journal

  

Minority balances in Control Acccounts

Normally, debtors accounts have debit balances

Creditors accounts contain credit balances.

There may instances when debtors might return some goods after their accounts have been settled and this may lead them to have a credit balance.

What to do?

The Debtors control Account will have both the debit and credit balances brought down.

Same procedure will take place for Creditors Control Account.

Through this the true financial position is shown i.e. the exact amount owing by debtors as well as the amount owing to them.

 

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