control accounts
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Control Accounts. Functions of control accounts. The control accounts help us to locate errors. The control accounts provide a summary. The total balances of the debtors and creditors can be derived quickly and easily. - PowerPoint PPT PresentationTRANSCRIPT
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Control Accounts
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Functions of control accounts
The control accounts help us to locate errors.The control accounts provide a summary. The total balances of the debtors and creditors can be derived quickly and easily.The control accounts are prepared by a different person than the one who prepares the sales and purchases ledgers, which also make fraud more difficult.
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Form of control accounts
It is usual to final control accounts in the same form as an account, with the totals of the debit entries in the ledger on the left-hand side of the control account, and the totals of the various credit entries in the ledger on the right hand side of the control account.
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Sales ledger control account
Sales ledger control account = Total debtors
account
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Sales Ledger Control Account
1996 $
Dec 1 Balance b/f a
31 Sales b
31 Cash / Bank c
31 Bank d
31 Bills receivable e
31 Interest receivedf
31 Bad debts recovered g
31 Balance c/f h
x
1996 $
Dec 1 Balance b/f i
31 Returns Inwardsj
31 Cash / Bank k
31 Bills receivablel
31 Set-offm
31 Discount allowedn
31 Bad debtso
31 Balance c/f p
x
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Items Sources
a. Total of opening debit balance of debtors
Sales ledger
b. Total credit sales Sales journal
c.Cash refund to a customer who has overpaid his account
Cash book
d. Dishonoured cheques Cash book
e. Dishonoured bills Journal
f. Interest charged by us on overdue debts
Journal
g. Bad debts recovered Journal
h. Total of closing credit balances of debtors
Sales ledger
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i. Total of opening credit balances of debtors
Sales ledger
j. Returns inwards Returns inwards journal
k. Cash or cheques received from debtors
Cash book
l. Bills receivable from debtors Journal
m. Balances in sales ledger set off against credit balances in purchases ledger
Journal
n. Discounts allowed Cash book
o. Bad debts written off (not provision for bad debts)
Journal
p. Total of closing debit balances of debtors
Sales ledger
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Purchases ledger control account
Purchases ledger control account = Total creditors account
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Purchases Ledger Control Account
1996 $
Dec 1 Balance b/f a
31 Returns Outward b
31 Cash / Bank c
31 Bills Payable d
31 Set-offe
31 Discounts Received f
31 Balance c/f h
x
1996 $
Dec 1 Balance b/f h
31 Purchasesi
31 Cash / Bank j
31 Bank k
31 Bills Payable l
31 Interest Expensesm
31 Balance c/f n
x
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Items Sources
a. Total of opening debit balances of creditors
Purchases ledger
b. Returns outwards Returns outwards journal
c. Cash or cheques paid to creditors
Cash book
d. Bills payable to creditors Journal
e. Balances in purchases ledger set off against debit balances in sales ledger
Journal
f. Discounts received Cash book
g. Total of closing credit balances of creditors
Purchases ledger
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h. Total of opening credit balances of creditors
Purchases ledger
i. Total credit purchase Purchases journal
j. Cash refund from suppliers who have overcharged us
Cash book
k. Dishonoured cheques returned from creditors
Cash book
l. Dishonoured bills returned from creditors
Journal
m. Interest payable on overdue debts
Journal
n. Total of closing debit balances of creditors
Purchases ledger
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Types of Minority balances
Temporary debit balances in total creditors accountTemporary credit balances in total debtors account
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Reasons for the occurrence of minority balances
Returns after settlement of the accountsClaims for shortages of goods or for invoices overcharged after settlement the accounts
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Minority balances on the balance sheet
Balance sheetDebtors (debit balance of sales ledger + debit balance of purchases ledger) X Less: provision for bad debt (debit balance of
sales ledger x percentage) X
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Creditors (credit balances of purchases
ledger + credit balances of sales
ledger) X
X
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Contra item
If the same firm is both a supplier (creditor) and a customer (debtor), inter-indebtedness is set-off Contra items(set-off) are shown on the credit side of the sales ledger control account and will appear on the debit side of the purchases ledger control account
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The following information was extracted from the books of Lewell Ltd. On 1 March 1996:
Purchases ledger control account 28,500
Sales ledger control account 67,300
During the month:
Cash sales 12,000
Credit sales 20,000
Cash purchases 8,800
Credit purchases 14,000
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Discounts received from suppliers 5,400
Discounts allowed to customers 4,200
Returns Inwards 900
Cash received from customers 25,000
Cash payment to suppliers 30,000
Returns Outwards 700
Bad debts written off 100
Bills receivable from customers 11,000
Dishonoured cheques returned to customers 500
Balances in sales ledger set off against credit
Balances in purchases ledger 2,600
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Example 1
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Total creditors account31/3 discount received 5400
Returns outwards 700
Set-off 2600Cash 30000Bal c/f 3800
31/3 bal b/f 2850031/3 purchases 14000
42500 42500
Total debtor accounts31/3 Bal b/f 67300
Sales 20000Bank 500
31/3 discount allowed 4200Returns inwards 900Bad debts 100Cash 25000
Bill receivable 11000Set-off 2600Bal c/f 44000
87800 87800
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Comparing Sectional Balancing and Self-balancing system
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Self-Balancing system
• In larger organizations, control accounts are part of the double entry system,
• The sales ledger and purchases ledger (debtors and creditor accounts) are kept only on a memorandum purposes
.
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Sectional Balancing System
• In small firms, debtors and creditors accounts are regarded part of the double-entry system
• The control accounts should be kept only for memorandum purposes
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Original documents
Sales/PurchasesJournals
General ledgerSales and purchases a/c
Sales/purchases ledgersDebtors/Creditors
Trial Balance
Double-entry systemFor memorandum
purpose
Sales Ledger control a/cPurchases ledger control a/c
Sectional Balancing System
Note: posting
extracting
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Original documents
Sales/PurchasesJournals
General ledgerSales and purchases a/c
Sales/purchases ledgersDebtors/Creditors
Trial Balance
Double-entry systemFor memorandum
purpose
Sales Ledger control a/cPurchases ledger control a/c
Self-Balancing System
Note: posting
extracting
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Transaction recording
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Seller’s book
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Transactions Self-balancing System
Sectional Balancing System
A Credit sales Dr Sales Ledger ControlCr Sales
Dr DebtorsCr Sales
B Receipts from debtors
Dr Cash / BankCr Sales Ledger Control
Dr Cash/BankCr Debtors
C Return inwards
Dr Return InwardsCr Sales Ledger Control
Dr Return inwardsCr Debtors
D Discount allowed
Dr Discount AllowedCr Sales Ledger Control
Dr Discount AllowedCr Debtors
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Transactions Self-balancing System
Sectional Balancing System
E Bad debts written off
Dr Bad debtsCr Sales Ledger Control
Dr Bad debtsCr Debtors
F Bad debt recovered Dr Sales Ledger
ControlCr Bad debts recoveredDr Cash / BankCr Sales Ledger Control
Dr Cash/BankCr Debtors
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Buyer’s book
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Transactions Self-balancing System
Sectional Balancing System
A Credit purchases
Dr PurchasesCr Purchases Ledger Control
Dr PurchasesCr Creditor
B Payment to creditors
Dr Purchases Ledger ControlCr Cash/ Bank
Dr CreditorsCr Cash/Bank
C Return outwards
Dr Purchases Ledger Control Cr Return Outwards
Dr Creditors Cr Return Outwards
D Discount received
Dr Purchases Ledger Control Cr Discount Received
Dr Discount AllowedCr Debtors
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Correction of Errors
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Errors Self-balancing System
Sectional Balancing System
a. Credit sales invoice omitted
Dr Sales ledger ControlCr Sales(Increase the debtors ledger listing.)
Dr DebtorsCr Sales(Debit the sales ledger control account.)
b. Sales omitted in journal
Dr Sales Ledger ControlCr Sales(Increase the debtors ledger listing.)
Dr Debtors Cr Sales(Debit the sales ledger control account.)
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c. Sales of $120 incorrectly entered in sales journal as $100
Dr sales Ledger Control Cr Sales(increase the debtors ledger listing.)
Dr DebtorsCr Sales(Debit the sales ledger control account.)
d. Sales journal undercast.
Dr Sales ledger Control Cr Sales(The debtors ledger listing remains constant, because only the total figure is wrong. This does not affect the debtors accounts, the figures for which are entered individually.)
Dr SuspenseCr Sales(Debit the sales ledger control account.)
e. Sales of $120 incorrectly entered as $100 in sales account
Dr SuspenseCr Sales
Dr SuspenseCr Sales
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f. Sales understated in sales ledger control account
Dr Sales Ledger ControlCr Suspense
No entry(Debit the sales ledger control account.)
g. Sales of $120 incorrectly debited to debtor account as $100.
No entry(Increase the debtors ledger listing.)
Dr DebtorsCr Suspense
h. Balance of sales has been incorrectly put to the wrong side of the trial balance.
Dr Suspense Dr Suspense
i. Balance of debtors has been incorrectly put to the wrong side of the trial balance.
No entry Cr Suspense
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j. Balance of sales ledger control account has been incorrectly put to the wrong side of the trial balance.
Cr. Suspense No entry
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Example 2
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John ChanThe Journal
Dr Cr
1996 $ $
Dec 31 Sales Ledger Control 530 Sales
53031 Suspense 1,050
Discount received 1,050
31 Returns Outwards 3,200 Purchase Ledger Control
3,200 31 Purchases Ledger Control 120
Sales Ledger Control 120
31 Bank 1,000 Sales Ledger Control
1,000 31 Bank 2,250 Suspense 2,250
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Suspense Account$
Balance b/f 1,200
Discounts received 1,050
2,250
$
Bank 2,250
_____
2,250
Sales Ledger Control Account$
Balance b/f 30,000
Sales 530
Balance c/d 2,950
33,480
Balance b/d 32,360
$
Bank 1,000
Purchase Ledger Control-set off 120
Balance c/d 32,360
33,480
Balance b/d 2,950
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Statement showing the Revised Balance of Sales Ledger Listing$
Original Balance 32,000
Add Invoice understated 360
Revised Balance 32,360
Purchases Ledger Control Account$
Sales Ledger Control-set-off 120
Balance c/d 16,500
______
16,620
Balance c/d
$
Balance b/d 12,000
Returns Outwards 3,200
Balance c/d 1,420
16,620
Balance b/d 16,500
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Statement showing the Revised Balance of Purchases Ledger Listing$
Original Balance 17,135
Less Balance overstated 635
Revised Balance 16,500
Statement showing the Revised Net Profit for the year ended 31 Dec 1996
$ $
Net Profit as per accounts 11,200
Add Sales undercast 530
Discounts Received undercast 1,050 1,580
12,780
Less Returns Outwards overcast 3,200
Revised Net Profit 9,580
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John ChanBalance Sheet as at 31 Dec 1996
$ $
Fixed Asset 12,000
Less Prov. For Depn. 5,000
7,000
Current Assets
Stock 16,000
Debtors (32360+1420) 33,780
Bank (7000+1000+2250) 10,250 60,030
67,030
$
Capital
Balance as at 1 Jan 96 38,000
Add Net Profit 9,580
47,580
Current Liabilities
Creditors(16500+2950) 19,450
______
67,030