Control Accounts

1. Control Accounts Chapter 5

2. Debtors Account • A debtor is someone who owes the business money usually for goods sold on credit. • A debtors account is an asset account. The main balance will appear on the debit side. • Transactions that increase the amount owed increase the asset and are entered on the debit side . • Transactions that decrease the amount owed decrease the asset and are entered on the credit side.

3. Creditors Account • A creditor is somebody to whom the business owes money ,usually for goods purchased on credit. • A creditors account is a liability .The main balance will appear on the credit side . • Transactions that increase the amount to be paid increase the liability and are entered on the credit side. • Transactions that decrease the amount to be paid decrease the liability and are entered on the debit side.

4. Control Accounts • The control accounts contain the same entries that appear in individual debtors and creditors accounts . • These entries are recorded in the exact same way as the appear in the individual accounts. • The control accounts however are prepared using totals taken from the books of first entry and ledgers.

5. Debtors Control Account • The debtors control account is prepared using the totals from the sales book, sales returns book, cash book, general journal and ledger accounts such as discount and interest.

6. Creditors Control Account • The creditors control account is prepared using the totals from the purchases book, purchases returns book, cash book, general journal and ledger accounts such as discount and interest.

7. Purpose of Control Accounts • Check that the individual debtors and creditors accounts are correct. If all transactions have been entered correctly the balance in the control account will be the same as the balance of the individual accounts added together.

8. Advantages • They ensure that the debtors and creditors figures are accurate and can be relied upon by comparing the balance of the control account with the total as per schedule of debtors /creditors balances. • The allow for errors to be found quickly as they identify the ledger or ledgers in which the error may have been made . • They allow for quick calculation of the debtors and creditors for inclusion in the firms balance sheet.

9. Debtors Control Account This account shows both a debit and a credit balance :the main balance (larger balance) is on the debit side .

10. Debtors Control Account • This account shows both a debit and a credit balance :the main balance(larger balance) is on the debit side . • Certain circumstances can arise whereby the debtors are owed money by the firm ,resulting in a credit balance. • Sales returns received after full payment has been received. • Discount allowed after full payment has been received . • Overpayment of a debt by a debtor.

11. Creditors Control Account This account shows both a debit and a credit balance :the main balance (larger balance) is on the credit side .

12. Creditors Control Account • This account shows both a debit and a credit balance :the main balance(larger balance) is on the credit side . • Certain circumstances can arise whereby the creditors owe the firm money, resulting in a debit balance. • Purchases returns received after full payment has been made. • Discount received after full payment has been made . • Overpayment of a debt to a creditor.

13. Important Points • Cash Sales/Cash Purchases –These are not to be entered in either control accounts or individual accounts. • VAT-Figures for sales ,purchases etc in the control account must be shown including VAT as this is how they appear in the individual accounts. • Bills Receivable-The amount owed by the debtor is reduced ;thus these are entered on the credit side of a debtors account.They are not entered in a creditors account.

14. Important Points • Bills Payable- The amount owed to a creditor is reduced ;thus these are entered on the debit side of the creditors account. They are not entered in a debtors account. • Contra Entry- A contra entry can occur when a firm is both a supplies and a customer making the firm both a debtor and a creditor. It involves one amount being offset against another .It has the effect of reducing the amount owed by debtors while at the same time reducing the amount owed to creditors .

15. Schedule (List) of Debtors and Creditors (HL) • The debtors figure arrived at in the debtors control account should equal the sum of the individual account balances in the debtors ledger (list of debtors). • If the totals of the control account and the list do not agree it will be necessary to find the errors in one or both and set out the adjustments in a reconciliation statement. • The individual ledger accounts and the schedule or list should be corrected as necessary. • Same applies to creditors.

16. Reasons for Differences • Errors or mistakes have been made in the preparation of either the control account or the schedule (list) or both. • Breakdown in double entry ,where debits and credits are incorrect. • An error when totalling the day books (books of original entry) and these totals (incorrect) transferred to the control account and the list.

17. Which Account ? • The CONTROL ACCOUNT is drawn up from the books of first entry or the general ledger, which contains accounts such as sales, sales returns, purchases, purchases returns , interest and discount. • The LIST/SCHEDULE is drawn up from the personal ledger account balances of the firm’s customers and suppliers.

18. Important • Debtors Questions- Following words appear Debtors account, customer’s account, personal account Correct the Schedule (List) • Creditors Questions-Following words appear Creditors account, suppliers account, personal account Correct the Schedule (List) All other entries will affect the control account

19. ABC • Actual • Should Be • Correction