Purposes of control accounts

1. 2. 3. 4. To act as a check on the accuracy of the totals of the balances in the sales and purchases ledgers. To provide totals of debtors and creditors quickly when a trial balance is being prepared. To identify the ledger(s) in which errors have been made when there is a difference on the trial balance. To act as an internal check on the work of the sales and purchases ledger clerks to detect errors and deter fraud, under the charge of a responsible person

The format of sales ledger control account

Balances b/d(large amount) Credit sales Returned cheque (unpaid cheque) Interest charged to debtors Cash refunds to customers Set off or contra entries Balances b/d(small amount) Cash/cheque from debtors discount allowed Sales returns Bad debts written off

Balances c/d(small amount) Balances c/d(large amount) xxxxxxx Balances b/d (large amount)

xxxxxxx Balances b/d (small amount) -

Sources of information for items appearing in the sales ledger control account
1. 2. 3. 4. 5. 6. 7. 8. Credit sales- sales day book total. Returned cheques (unpaid cheques) cash book- payments side/ bank statement. Interest charged to debtors- Interest received account. Cash or cheques from debtors cash book-receipts side. Discount allowed cash book (debit side) or discount allowed account. Sales returns sales returns day book total. Bad debts written off general journal or bad debts account. Set off or contra entries- general journal.

Format of purchase ledger control account Balances b/d (small amount) Balances b/d (large amount)

Cash /cheques paid to creditors Discount received Purchases returns Set off /contra entries Balances c/d (large amount) xxxxx Balances b/d (small amount)

Credit purchases

Interest charged by Creditors xxxxxx Balances b/d (large amount) Balances c/d (small amount) Refunds from suppliers

Sources of information for items appearing in the purchases ledger control account a Credit purchases purchases day book total b. Interest charged by creditors interest paid account. c. Cash/cheque paid to creditors cash book payments side. d. Discount received cash book payment side or discount received account e. Purchases returns purchases returns day book total. f. Set off or contra entries general journal.

Set off / contra entries. Sometimes, the same person may be a debtor as well as a creditor for the business. At the end of the month, the smaller amount in his account from one ledger is transferred to his account in the ledger with large amount. The entry passed for recording this transfer is known as set off or
contra entry. Key Points

Control accounts are considered as total accounts. Debtors ledger control account is also known as sales ledger control account or total debtors account. Creditors ledger control account is also known as purchases ledger control account or total creditors account. Balance in sales ledger control account is the balance of debtors at the year end and balance in purchases ledger control account is balance of creditors. Cash sales and cash purchases are not recorded in the control accounts. The double entry to record set off from purchase ledger to sales ledger is to debit purchase ledger control account and credit sales ledger control account. Dishonoured cheque which was received from debtors is shown in the debit side of the sales ledger control account. Interest on overdue accounts charged from customers and refunds to customers for overpayments by them are shown on the debit side of sales ledger control account. Interest charged by suppliers and refunds received from suppliers for overpayments to them are recorded in the credit side of purchases ledger control account. Provision for bad debts is not included in sales ledger control account Small balance in a control account represents advance payments, overpayments etc. MCQ

1.

What is the source of information for credit sales for preparing the control accounts? 1. 2. Sales account in the General ledger Sales journal C. General journal D. Sales ledger B. Discount received D. Returns inwards

2.

Which of the following is not considered while preparing the sales ledger control account?

A. Opening balance of debtors C. Discount allowed

3. Which item will appear on the debit side of a debtors ledger control account? A. Cash sales C. Return inwards B. Cheques received D. Sales on credit

4. Which item will appear on the credit side of a purchase ledger control account? A. Cheques paid C. Credit purchases B. Discount received D. purchases returns

5. What is the purpose of preparing the control accounts? A. To calculate the total sales B. To calculate the closing debtors only

C. To calculate the closing creditors only D. To check the arithmetical accuracy of each ledger separately. 6. What is the alternative name of the sales ledger control account? A. Total debtors account C. Purchases account B. Total creditors account D. sales account.

7. Cash is refunded to customer, who had overpaid his account. In which ledger control account it is recorded? 1. 2. 3. 4. Debit side of sales ledger control account. Credit side of sales ledger control account. Debit side of purchase ledger control account. Credit side of purchase ledger control account.

8. A refund was received from a supplier for excess payment made by us. Where should it be recorded? A. Debit side of sales ledger control account. B. Credit side of sales ledger control account. C. Debit side of purchase ledger control account. D. Credit side of purchase ledger control account. 9. A purchase ledger control account is prepared from the following list of items:-

Total creditors at the start of the month $ 900 Credit purchases Customers debts written off Cash paid to creditors Returns inwards What is the closing balance? A. $ 600 B. $900 C. $ 1100 D. 1400 $ 12000 $ 200 $ 11800 $ 300

10. The table shows details of sales ledger:Sales ledger opening balance Total credit sales Cheques received from customers Cash received form customers Returns inwards What is the closing balance of debtors? A. $ 3664 B.$ 3072 C. $ 3368 D. $ 2664 $ 1894

$ 10290 $ $ $ 7284 1236 296

Assignment questions Q 1. The following details are available from the books of Weston for the month of May, 2003.Prepare Sales ledger control account and Purchases ledger control account. $ Opening debtors Opening creditors Cash received from debtors Cheques received from debtors Cheques paid to creditors Cash paid to creditors Bad debts written off during the year Discount allowed Discount received Returns inwards 4 000 3 800 8 000 60 000 55 000 7 000 750 1 250 1 000 800

Returns outwards Transfer from purchases ledger to sales ledger Credit sales Credit purchases

500 500 80 000 71 000

Q 2. From the following information prepare the sales ledger control account and purchases ledger control account. $
Opening debtors Opening creditors Credit sales Credit purchases Returns inwards Returns outwards Discounts allowed Discounts received Bad debts written off Cash paid to creditors Cheques paid to creditors Cheques received from debtors Cash received from debtors Customers cheques returned unpaid Set off from sales ledger to purchases ledger 800 1 000 300 200 2 500 20 000 25 000 4 500 1 000 600 12 000 8 000 30 000 25 000 500

Q3. The following details are available from the books of Mathews for the month of June, 2003. Prepare the sales ledger control account and purchases ledger control account for the month of June, 2003. Sales ledger control account balance b/d Purchases ledger control account balance b/d Purchases for the month Sales for the month Returns inwards Returns outwards Payments to creditors Receipts from debtors Customers cheques returned unpaid Bad debts written off Discount received Discount allowed Transfer from purchases ledger to sales ledger Credit balance in sales ledger control account Debit balance in purchases ledger control account 400 11 000 15 000 500 300 550 750 600 600 200 16 000 1 000 10 000 8 000 12 000 $

Q4. The following information was obtained from the books of Vale. March 1 Creditors March 31 Credit sales 7 200 200 120 19 580 250 5 170 Debtors 2 580

$ 9 506

20 345

Credit purchases at list price Returns outwards at list price Sales returns Cash and cheques received from debtors Customers cheques dishonored Cash and cheques paid to suppliers

Discount received Discount allowed Interest charged to customers on overdue accounts Bad debts written off Balance in sales ledger set off against balance in the purchases ledger Cash refunds from suppliers for overpayments Debit balances in purchases ledger Credit balances in sales ledger

190 210 70 155

350 60 40 64

All purchases and purchases returns were subject to a trade discount of 10% off the list price. Prepare the sales ledger control account and purchases ledger control account.

Q 5. The following information was obtained from the books of K. Kent:1st April, 2002 Trade debtors 518 creditors Stock in trade 31st March, 2003: Credit sales Credit purchases at list price Purchase returns at list price Sales returns Cash and cheque received from debtors Customers cheque dishonored Cash and cheque paid to creditors Discount received Discount allowed Interest charged to customers on overdue accounts Bad debts written off Balance in sales ledger set off against balance in purchases ledger 1050 21 600 600 360 58 740 750 15 510 570 630 210 465 Trade 7 740 22 500 61 440 28

Cash refunds from suppliers for overpayments Debit balance in purchases ledger Credit balance in sales ledger Interest charged by our suppliers on overdue accounts Cash refunds to customers for overpayments by them

180 120 186 390 540

All purchases and purchase returns are subject to a trade discount of 20% off the list price. during the year Cash sales were $ 22 000 and Cash purchases were $ 12 500. On 31st March, 2003 the stock in trade was valued at $ 12 500.

Required to:1. Prepare the sales ledger control account and purchases ledger control account. 2. Calculate the gross profit of the business for the year ended 31 st March,2003.

Q 6. The following information is relating to the business of Anson for the month ended 31st March 2003:Credit sales and return inwards are subject to 10% trade discount on list price.

1st March 2003 31 March

Debtors Creditors Credit sales at list price Cash sales Returns inwards at list price Credit purchases Discount allowed Discount received Customers cheque returned by bank with remarks of insufficient funds Interest charged on overdue debts Return outwards Cheques paid to suppliers Cheques and cash received from credit customers Credit balance in sales ledger Bad debts written off

4,000 2,000 2,00,00 5,000 1,500 12,000 1,500 1,400 900 250 750 7,000 15,000 300 600

Required:1. Make sales ledger control accounts of Mr. Ibrahim for the month of March 2003. 2. Calculate total Turn over on 31st March 2003

Q 7. The following information was obtained from the books of K. Vasanthi.

$ 1 April 2003
st

Trade debtors Trade creditors Stock in trade Credit sales Credit purchase at list price* Purchase return at list price* Sales return Cash and cheque received from debtors Customers cheque dishonored Cash and cheque paid to suppliers Discount received Discount allowed Interest charged to customers on Overdue accounts Bad debts written off Balance in the sales ledger set off against balance in the purchase ledger Cash refunds from suppliers for over payments Debit balance in purchase ledger Credit balance in sales ledger Overdue interest charged by our suppliers Cash refunds for over payments made by customers

19,012 5,160 15,000 40,690 14,400 400 240 39,160 500 10,340 380 420 140 310 700 120 80 124 260 360

31 March 2004

st

*All purchases and purchase returns were subject to a trade discount of 20%off the list price. During the year cash sales were $ 22 000 and cash purchase were $ 12,500. *On 31st March 2004 the stock in trade was valued at $ 12,500. Required:1. Total Debtors Account for the year ended 31st March 2004 2. 3. Total Creditors Account for the year ended 31st March 2004. c. Calculate the Gross profit of the business for the year ended 31 st march 2004.

Q 8. The following details are available from the books of a business for the year ended 31st December 2002:On 1-1-2000 On 31-12-2000 On 1-1-2002 On 1-1-2002 On 31-12-2002: The balance in the provision for bad debts account Total debtors Purchase ledger control account balance Sales ledger control account balance $ 400 $12 000 $ 12 700 $ 14 200 $

Cheque issued to suppliers Cheque received from customers Discount allowed Discount received Returns inwards Return outwards Bad debts written off Dishonored cheque returned to us Credit sales Credit purchases Set off from purchase ledger to the sales ledger 5% of year end debtors should be created as provision for bad debts Required to prepare:-

$ 19,200 $ 50,400 $ $ 400 600

$ 1 000 $ 900

$ 1 200 $ 1 200 $ 52 000 $ 28 000 $ 2 000

a. Purchase ledger control account for the year ended 31st December 2002 b.Prepare the sales ledger control account for the year ended 31 st Dec 2002. c.The provision for bad debts a/ct and the balance sheet extracts for the 3 years ended 31 st Dec 2000,2001 and 2002.

Q 9. The following details are available from the books of a business for the year ended 31st December 2002:On 1-1-2000 On 31-12-2000 On 1-1-2002 On 1-1-2002 On 31-12-2002: Cheque issued to suppliers Cheque received from customers Discount allowed Discount received $ 19,200 $ 50,400 $ $ 400 600 The balance in the provision for bad debts account total debtors Purchase ledger control account balance Sales ledger control account balance $ 400 $12 000 $ 12 700 $ 14 200 $

Returns inwards Return outwards Bad debts written off Dishonored cheque returned to us Credit sales Credit purchases Set off from purchase ledger to the sales ledger 5% of year end debtors should be created as provision for bad debts Required to prepare:1. Purchase ledger control account for the year ended 31st December 2002 2. Prepare the sales ledger control account for the month ended 31 st Dec 2002.

$ 1 000 $ 900

$ 1 200 $ 1 200 $ 52 000 $ 28 000 $ 2 000

Q 10. Ander Paul, a sole trader, provided the following information from his accounts for the year ended 31st Dec 2003. $ Credit sales for Credit purchases for Credit sales return for 2003 2003 2003 75 500 68 900 700

Total debtors at Total creditors at

1 Jan 03 1 Jan 03 4 800 600

8 500

Prov. for bad debts as at 1 Jan 01

Discount Sales

Cash 9 000

Bank 1 000 Debtors (dishonored Cheque)

Discount

Cash

Bank 600

Debtors

4 000

60 000

Purchase Creditors 1 800

1 500 5 000 40 000

The cash book extract figures are totals for the year. The following points are also relevant. 1. $ 600 of trade debtors were written off as bad debts on 7th Oct 2003 2. 3. A revised provision for bad debts is to be 5%of the trade debtors balance as at 31 st Dec 2001. Balance in the sales ledger set off against balance in the purchase ledger $ 300.

Required to prepare the Sales ledger control account and the provision for bad debt account for the year ended 31st Dec 2003. Q. Give two reasons for keeping control accounts. Or Identify two advantages of preparing control account. v Control account helps to eliminate unnecessarily detailed information from the general

ledger. v Control account make possible the preparation of trial balance without referring to the

subsidiary ledgers. v v v v v Enables the counter-checking of sales ledger and purchases ledger individual balances. To check the accuracy of postings in the ledger. Provides easy reference for information. Localize errors. Enable the general ledger to be self-balanced.

FORMATS: