CONTROL ACCOUNT
To control means to manage or act of preventing unwanted situations or events. Therefore, a control account is an account that is prepared to eliminate or limit the discrepancies that may occur in the ledger.
Every class of account can be controlled but since the number of parties involved in purchases and sales is large, businesses try to prevent any form of errors or fraudulent activities in the process by preparing control account on credit sales and credit purchases.
A control account is also known as a memorandum account because it is prepared on a single entry basis i.e. it does not follow the double entry principle. It is a self-balancing account because the total of each side of the account will be equal to the total of the addition of all sides of the individual debtors’ or creditors’ accounts.
Forms or Types of Control Account
There are two main types of control accounts which are:
1. Sales ledger control account
2. Purchases ledger control account
Sales Ledger Control Account
A sales ledger control account is an account used to control or eliminate various errors that may arise in debtors’ accounts.
Source of Entries Recorded in Sales Ledger Control Account
Information used in preparing sales ledger control account are most times derive daybook or journals such as:
· Sales day book which records the details of goods sold on credit.
· Cashbook which contains the record of cash received from customers as well as discounts allowed.
· Return inward journal contains the records of goods return by the customer.
· General journal contains the records of bad debt, among others.
Illustration 1
The following balances are collected from the account of Abiodun Enterprises on 31st December 2020:
N
Balance as at 1st Dec. 2020 12,000
Credit sales 76,000
Cash and cheques received from customers 48,000
Sales return 16,000
Discount allowed 5,000
Bad debt written off 3,500
Set off 2,000
You are required to prepare the sales ledger control account for the month of December 2020.
Solution
ABIODUN ENTERPRISES
Sales Ledger/Total Debtors Control Account | |
| |
Bal b/f 12,000 | Cash received 48,000 |
Sales 76,000 | Return inward 16,000 |
| Discount allowed 5,000 |
| Bad debt written off 3,500 |
| Set off 2,000 |
| Bal c/d 13,500 |
88,000 | 88,000 |
Bal b/d 13,500 | |
The balance of N13,500 will be transferred to the trial balance.
Noted Terms
Set Off: This happens when debt is used to settle debt. That is when businesses buy goods from a debtor and allow him to remove the amount from the money he owed the business.
Purchases Ledger Control Account
Purchases Ledger Control Account
Purchase ledger control account is an account used to eliminate or control the likely errors that may occur in the creditors’ account.
Source of Entries Recorded in Sales Ledger Control Account
Entries recorded into this account are obtained from the following:
· Purchase day book/Journal for records of credit purchases
· Return outward journal for records of goods return back to suppliers
· Cashbook for record of cash paid to suppliers and discount received from them.
· General journal
Illustration 2
The following figures are the records of Hassan Ltd purchases ledger for the month of May 2021:
N
Credit balance as at 1st May. 202 4,000
Credit purchases 21,000
Purchases return 3,000
Cash paid to suppliers 14,000
Discount received 1,500
Transfer of debit balances in sales ledger to purchases ledger 3,500
You are required to prepare the purchases ledger control account of Hassan Ltd for the month of December 2020.
Solution
HASSAN LTD
Purchases Ledger/Total Creditors Control Account | |
| |
Return outward 3,000 | Bal b/f 4,000 |
Cash 14,000 | Purchases 21,000 |
Discount received 1,500 | |
Set off 3,500 | |
Bal c/d 3,500 | |
25,000 | 25,000 |
| Bal b/d 3,500 |
The balance of N3,500 will be transferred to the credit side of the trial balance.
Noted Terms
Bal b/f means balance brought forward and it is the amount that remained to balance off the debt of the business at the end of the previous month. That is, the balance brought down (Bal b/d) last month will be balance brought forward (Bal b/f) at the beginning of the new month.
Sales Ledger Control Account and Purchases Ledger Control Account
At times, the accounting information that comprise the records of debtors and creditors can be given in the same account thereby, requiring the preparer or students to filter the information and prepare the sales ledger control account and purchases ledger control account.
Illustration 3
The following balances were extracted from the ledger of Alison Enterprises on 30th September 2021.
N
Debtors balance as at 1st September 2021 2,500
Creditors as at 1st September. 2021 4,700
Credit purchases 23,500
Credit sales 21,000
Cash and cheques received from customers 15,400
Cash and cheques paid to suppliers 19,500
Discount allowed 2,000
Discount received 1,200
Debtors’ cheque dishonored 3,000
Return outward 2,000
Bad debt written off 1,000
Provision for doubtful debt 2,000
You are required to prepare the purchases ledger control account and purchases ledger control account of Alison Enterprises Ltd for the month of September 2021.
Solution
ALISON ENTERPRISES
Sales Ledger/Total Debtors Control Account | |
| |
Bal b/f 2,500 | Cash & cheques received 15,400 |
Credit sal 21,000 | Discount allowed 2,000 |
Dishonored cheques 3,000 | Bad debt written off 1,000 |
| Bal c/d 8,000 |
36,500 | 36,500 |
Bal b/d 8,000 | |
Purchases Ledger/Total Creditors Control Account | |
| |
Cash 14,000 | Bal b/f 4,700 |
Discount received 1,200 | Purchases 23,500 |
Return outward 2,000 | |
Bal c/d 5,200 | |
28,200 | 28,200 |
| Bal b/d 5,200 |
Noted Terms
Dishonored cheques as contained in the account of debtors’ control account are cheques received from customers but rejected by bank due to any of the reasons that may make a cheque to be dishonored by the bank.
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