Control Accounts
Not all the transactions done in a business are in cash. Now days, businesses do a lot more transactions in credit and thus there is a long list of debtors and creditors. Since the bulk of entries are made in the accounts of debtors and creditors, these two classes of accounts are taken out of the General Ledger and put in a subsidiary ledger.
Subsidiary ledgers include
Sales Ledger: Which contains all debtors accounts
Purchases Ledger: contains all creditors’ accounts.
This is where control account comes in…
Control account is a summary of all the accounts in the subsidiary ledgers.
The summary of all accounts in the Sales ledger make up the Debtors control account and the summary of all accounts in the Purchase Ledger is known as the Creditors control account.
How to make Debtors Control Account
- Sales transaction takes place
- It is recorded in the Sales Journal
- From the Sales Journal entry is posted to the Sales Ledger.
From where do you get information to draw Debtors Control Accounts?
|
Information |
Source |
|
Total Opening Balance |
Trial Balance at close of previous period |
|
Total Sales |
Sales Journal |
|
Dishonoured Cheques |
Cash Book |
|
Discount allowed withdrawn |
General Journal |
|
Any charges to debtors |
General Journal |
|
Total cash and cheques received from debtors |
Cash book |
|
Discount allowed |
Cash Book |
|
Returns inwards and allowances |
Returns Inwards journal |
|
Bad Debts |
General Journal |
How do we prepare Creditors Control Account?
Also known as Purchases Ledger Control Account
It accounts for all Creditors appearing in the Purchases Ledger.
From where do you get information to draw Creditors Control Accounts?
|
Information |
Sources |
|
Total cash and cheques paid to creditors |
Cash Book |
|
Discount received |
Cash Book |
|
Returns outwards and allowances |
Returns Outwards Journals |
|
Total opening balances |
Trial Balance at close of previous period |
|
Total purchases |
Purchases Journal |
|
Any charges by creditors |
Journal |
Minority balances in Control Acccounts
Normally, debtors accounts have debit balances
Creditors accounts contain credit balances.
There may instances when debtors might return some goods after their accounts have been settled and this may lead them to have a credit balance.
What to do?
The Debtors control Account will have both the debit and credit balances brought down.
Same procedure will take place for Creditors Control Account.
Through this the true financial position is shown i.e. the exact amount owing by debtors as well as the amount owing to them.
