Control Accounts - Principles Of Accounting
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Control Accounts are the total accounts used for checking the arithmetical accuracy of each of ledger separately. A control account contains the same information as the individual ledger accounts which it controls, but in total. Purposes of control accounts 1. To act as a check on the accuracy of the totals of the balances in the sales and purchases ledgers. 2. To provide totals of debtors and creditors quickly when a trial balance is being prepared. 3. To identify the ledger(s) in which errors have been made when there is a difference on the trial balance. 4. 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
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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. Creditor’s 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
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purchases ledger control account is balance of creditors. Cash sales and cash purchases are not recorded in the control accounts.
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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.
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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.
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Sources of information for items appearing in the sales ledger control account
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1. Credit sales- sales day book – total. 2. Returned cheques (unpaid cheques) – cash book- payments side/ bank statement. 3. Interest charged to debtors- Interest received account. 4. Cash or cheques from debtors – cash book-receipts side. 5. Discount allowed – cash book (debit side) or discount allowed account. 6. Sales returns – sales returns day book total. 7. Bad debts written off – general journal or bad debts account. 8. Set off or contra entries- general journal. The format of sales ledger control account
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Control Accounts - Principles Of Accounting
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1. Credit sales- sales day book – total. 2. Returned cheques (unpaid cheques) – cash book- payments side/ bank statement. 3. Interest charged to debtors- Interest received account. 4. Cash or cheques from debtors – cash book-receipts side. 5. Discount allowed – cash book (debit side) or discount allowed account. 6. Sales returns – sales returns day book total. 7. Bad debts written off – general journal or bad debts account. 8. Set off or contra entries- general journal. Format of purchase ledger control account
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Control Account Questions: Q1.The following balances have been extracted from the books of a business on 31 may 2006 Prepare the Sales Ledger control account $ Opening Debtors Receipts from debtors
6 000 11 400
Discounts allowed
600
Returns Inwards
500
Bad debts written off Set off from purchase ledger Credit sales of goods Credit balances on 31 May 2006
500 1 000 15 000 200
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100
Interest charged from debtors
100
Cash refunds to customers
50
Q2.The following balances have been extracted from the books of a business on 31 may 2006 Prepare the Sales Ledger control account $ Opening Debtors
10 000
Receipts from debtors
21 500
Discounts allowed
500
Returns Inwards
300
Bad debts written off
100
Set off from purchase ledger Credit sales of goods Credit balances on 31 May 2006 Dishonored cheques
800 25 000 300 1000
Interest charged from debtors
200
Cash refunds to customers
100
Q3. The following balances have been extracted from the books of a business that uses control accounts. The business makes up the control accounts on 31 may 2006.Prepare the Purchases Ledger Control Account $ Opening Creditors
4 000
Payments to creditors
7 600
Discounts received
400
Purchases returns
500
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1 000
Interest charged by suppliers
200
Cash refunds from suppliers
100
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Control Accounts - Principles Of Accounting
Credit Purchases
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12 000
Q4.The following balances have been extracted from the books of a business that uses control accounts. The business makes up the control accounts on 31 may 2006. Prepare the Purchases Ledger Control Account $ Opening Creditors Payments to creditors
6 000 10 400
Discounts received
600
Purchases returns
750
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Set off from Sales Ledger
1 500
Interest charged by suppliers
300
Cash refunds from suppliers Credit Purchases
150 18 000
Q5. 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
4 000
Opening creditors
3 800
Cash received from debtors
8 000
Cheques received from debtors
60 000
Cheques paid to creditors Cash paid to creditors Bad debts written off during the year
55 000 7 000 750
Discount allowed
1 250
Discount received
1 000
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800
Returns outwards
500
Transfer from purchases ledger to sales ledger
500
Credit sales
80 000
Credit purchases
71 000
Q6. From the following information prepare the sales ledger control account and purchases ledger control account. $ Opening debtors Opening creditors
12 000 8 000
Credit sales
30 000
Credit purchases
25 000
Returns inwards
500
Returns outwards
800
Discounts allowed
1 000
Discounts received
300
Bad debts written off
200
Cash paid to creditors
2 500
Cheques paid to creditors
20 000
Cheques received from debtors
25 000
Cash received from debtors
4 500
Customers cheques returned unpaid Set off from sales ledger to purchases ledger
1 000 600
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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
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10 000
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Purchases ledger control account balance b/d
8 000
Purchases for the month
12 000
Sales for the month
16 000
Returns inwards
1 000
Returns outwards
400
Payments to creditors
11 000
Receipts from debtors
15 000
Customers’ cheques returned unpaid Bad debts written off
500 300
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550
Discount allowed
750
Transfer from purchases ledger to sales ledger
600
Credit balance in sales ledger control account
600
Debit balance in purchases ledger control account
200
Q 10. 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
Debtors
31 March
Creditors Credit sales at list price
4,000 2,000 2,00,00 5,000 1,500
Cash sales Returns inwards at list price
12,000 1,500
Credit purchases Discount allowed
1,400 900
Discount received Customer’s cheque returned by bank with remarks of “insufficient funds” Interest charged on overdue debts
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750 7,000
Return outwards Cheques paid to suppliers
15,000 300
Cheques and cash received from credit customers Credit balance in sales ledger
600
Bad debts written off
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 Q11.
The following information was obtained from the books of K. Vasanthi.
1st April 2003
Trade debtors Trade creditors Stock in trade
31st March 2004 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
$ 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 Overdue interest charged by our suppliers 360 Cash refunds for over payments made by customers *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.
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Required:1. Total Debtors Account for the year ended 31st March 2004 2. Total Creditors Account for the year ended 31st March 2004. 3. c. Calculate the Gross profit of the business for the year ended 31st march 2004.
Q12. The following details are available from the books of a business for the year ended 31st December 2002:$ On 1-1-2000
The balance in the provision for bad debts account
On 31-12-2000
Total debtors
$ 400
On 1-1-2002
Purchase ledger control account balance
$ 12 700
On 1-1-2002
Sales ledger control account balance
$ 14 200
$12 000
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ On 31-12-2002:
Cheque issued to suppliers
$ 19,200
Cheque received from customers
$ 50,400
Discount allowed
$
400
Discount received
$
600
Returns inwards
$ 1 000
Return outwards
$
Bad debts written off
900
$ 1 200
Dishonored cheque returned to us
$ 1 200
Credit sales
$ 52 000
Credit purchases
$ 28 000
Set off from purchase ledger to the sales ledger
$ 2 000
5% of year end debtors should be created as provision for bad debts Required to prepare:a. Purchase ledger control account for the year ended 31st December 2002
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c.The provision for bad debts a/ct and the balance sheet extracts for the 3 years ended 31st Dec 2000,2001 and 2002.
Q13. The following details are available from the books of a business for the year ended 31st December 2002:$ On 1-1-2000
The balance in the provision for bad debts account
On 31-12-2000
total debtors
600
On 1-1-2002
Purchase ledger control account balance
19 150
On 1-1-2002
Sales ledger control account balance
21 300
18 000
On 31-12-2002: Cheque issued to suppliers
28 800
Cheque received from customers
75 600
Discount allowed
600
Discount received
900
Returns inwards
1 500
Return outwards
1 200
Bad debts written off
1 800
Dishonored cheque returned to us
1 800
Credit sales
78 000
Credit purchases
42 000
Set off from purchase ledger to the sales ledger
3 000
5% of year end debtors should be created as provision for bad debts Required to prepare:- Purchase ledger and sales ledger control accounts for the year ended 31st December 2002 MCQ
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1. What is the source of information for credit sales for preparing the control accounts? 1. Sales account in the General ledger B. Sales journal
C. General journal
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D. Sales ledger
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1. Which of the following is not considered while preparing the sales ledger control account? A. Opening balance of debtors
B. Discount received
C. Discount allowed
D. Returns inwar
3. Which item will appear on the debit side of a debtors ledger control account? A. Cash sales
B. Cheques received
C. Return inwards
D. Sales on credit
4. Which item will appear on the credit side of a purchase ledger control account? A. Cheques paid
B. Discount received
C. Credit purchases
D. purchases returns
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ 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. Debit side of sales ledger control account. 2. Credit side of sales ledger control account. 3. Debit side of purchase ledger control account. 4. Credit side of purchase ledger control account. 5.
/ http://www.principlesofaccounting2.com/ 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
$ 12000
Customers’ debts written off
$ 200
Cash paid to creditors
$ 11800
Returns inwards
$ 300
What is the closing balance? A. $ 600
B. $900
C. $ 1100
D. 1400
10. The table shows details of sales ledger:Sales ledger opening balance
$
Total credit sales
1894
$ 10290
Cheques received from customers Cash received form customers
$ $
Returns inwards
$
7284 1236 296
What is the closing balance of debtors? A. $ 3664
B.$ 3072
C. $ 3368
D. $ 2664
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