control accounts activities

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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 th e trial balance. 4. To act as an internal check on the work o f 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) ———– Balances b/d(small amount) ———– Credit sales ———— Cash/cheque from debtors ———— Returned cheque discount allowed ———— (unpaid cheque) ———- Sales returns ———– Interest charged to debtors ———- Bad debts written off ———– Cash refunds to customers ———– Balances c/d(small amount) ———- Set off or contra entries ———— Balances c/d(large amount) ———— xxxxxxx xxxxxxx Balances b/d (large amount) ———- Balances b/d (small amount) ———- Sources of information for items appearing in the sales ledger control account 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 d iscount 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  Balances b/d (small amount) ——— Balances b/d (large amount) ——— 

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Page 1: Control Accounts Activities

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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, underthe charge of a responsible person

The format of sales ledger control account

Balances b/d(large amount) ———– Balances b/d(small amount) ———– 

Credit sales ———— Cash/cheque from debtors ———— 

Returned cheque discount allowed ———— 

(unpaid cheque) ———- Sales returns ———– 

Interest charged to debtors ———- Bad debts written off  ———– 

Cash refunds to customers ———– 

Balances c/d(small amount) ———- Set off or contra entries ———— 

Balances c/d(large amount) ———— 

xxxxxxx xxxxxxx

Balances b/d (large amount) ———- Balances b/d (small amount) ———-

Sources of information for items appearingin the sales ledger control account

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 

Balances b/d (small amount) ——— Balances b/d (large amount) ——— 

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Cash /cheques paid to creditors ——— Credit purchases ——— 

Discount received ——— Interest charged by Creditors ——— 

Purchases returns ——– Balances c/d (small amount) ——— 

Set off /contra entries ——– Refunds from suppliers ——— 

Balances c/d (large amount) ——– 

xxxxx xxxxxx

Balances b/d (small amount) ——– Balances b/d (large amount) ——– 

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 inhis 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 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 

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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

2.  Sales journal C. General journal D. Sales ledger

2.  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 inwards

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

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 B. Total creditors account

C. Purchases 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.

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:-

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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 $ 1894

Total credit sales $ 10290

Cheques received from customers $ 7284

Cash received form customers $ 1236

Returns inwards $ 296

What is the closing balance of debtors?

A. $ 3664 B.$ 3072 C. $ 3368 D. $ 2664

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 4 000

Opening creditors 3 800

Cash received from debtors 8 000

Cheques received from debtors 60 000

Cheques paid to creditors 55 000

Cash paid to creditors 7 000

Bad debts written off during the year 750

Discount allowed 1 250

Discount received 1 000

Returns inwards 800

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Returns outwards 500

Transfer from purchases ledger to sales ledger 500

Credit sales 80 000

Credit purchases 71 000

Q 2. From the following information

prepare the sales ledger control accountand purchases ledger controlaccount.

$Opening debtors 12 000

Opening creditors 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 1 000

Set off from sales ledger to purchases ledger 600

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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 10 000

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 500

Bad debts written off 300

Discount received 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

Q4. The following information was obtained from the books of Vale. $ 

March 1 Debtors 9 506

Creditors 2 580

March 31 Credit sales 20 345

Credit purchases at list price 7 200

Returns outwards at list price 200

Sales returns 120

Cash and cheques received from debtors 19 580

Customers’ cheques dishonored 250

Cash and cheques paid to suppliers 5 170

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Discount received 190

Discount allowed 210

Interest charged to customers on overdue accounts 70

Bad debts written off 155

Balance in sales ledger set off against balance in the

purchases ledger 350

Cash refunds from suppliers for overpayments 60

Debit balances in purchases ledger 40

Credit balances in sales ledger 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 28

518 Trade

creditors 7 740

Stock in trade 22 500

31st March, 2003: Credit sales 61 440

Credit purchases at list price 21 600

Purchase returns at list price 600

Sales returns 360

Cash and cheque received from debtors 58 740

Customer’s cheque dishonored 750

Cash and cheque paid to creditors 15 510

Discount received 570

Discount allowed 630

Interest charged to customers on overdue accounts 210

Bad debts written off 465

Balance in sales ledger set off against balance in

purchases ledger 1050

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Cash refunds from suppliers for overpayments 180

Debit balance in purchases ledger 120

Credit balance in sales ledger 186

Interest charged by our suppliers on overdue accounts 390

Cash refunds to customers for overpayments by them 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 31st March,2003.

Q 6. The following information is relating to the business of Anson for the month ended31st March 2003:-

Credit sales and return inwards are subject to 10% trade discount on list price.

1st March 2003 Debtors 4,000

Creditors 2,000

31 March Credit sales at list price 2,00,00

Cash sales 5,000

Returns inwards at list price 1,500

Credit purchases 12,000Discount allowed 1,500

Discount received 1,400

Customer’s cheque returned by bank with remarks of 

 ―insufficient funds‖  

900

Interest charged on overdue debts 250

Return outwards 750

Cheques paid to suppliers 7,000

Cheques and cash received from credit customers 15,000

Credit balance in sales ledger 300

Bad debts written off 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.

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$

1st April 2003 Trade debtors 19,012

Trade creditors 5,160

Stock in trade 15,000

31st March 2004 Credit sales 40,690

Credit purchase at list price* 14,400

Purchase return at list price* 400

Sales return 240

Cash and cheque received from debtors 39,160

Customers cheque dishonored 500

Cash and cheque paid to suppliers 10,340

Discount received 380

Discount allowed 420

Interest charged to customers on Overdue accounts 140

Bad debts written off 310

Balance in the sales ledger set off against balance in the

purchase ledger 700

Cash refunds from suppliers for over payments 120

Debit balance in purchase ledger 80

Credit balance in sales ledger 124

Overdue interest charged by our suppliers 260

Cash refunds for over payments made by customers 360

*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.  Total Creditors Account for the year ended 31 st March 2004.

3.  c. Calculate the Gross profit of the business for the year ended 31st 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 The balance in the provision for bad debts account $ 400

On 31-12-2000 Total debtors $12 000

On 1-1-2002 Purchase ledger control account balance $ 12 700

On 1-1-2002 Sales ledger control account balance $ 14 200

On 31-12-2002: 

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Cheque issued to suppliers $ 19,200

Cheque received from customers $ 50,400

Discount allowed $ 400

Discount received $ 600

Returns inwards $ 1 000

Return outwards $ 900

Bad debts written off $ 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 31 st 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 31st 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 The balance in the provision for bad debts account $ 400

On 31-12-2000 total debtors $12 000

On 1-1-2002 Purchase ledger control account balance $ 12 700

On 1-1-2002 Sales ledger control account balance $ 14 200

On 31-12-2002: 

Cheque issued to suppliers $ 19,200

Cheque received from customers $ 50,400

Discount allowed $ 400

Discount received $ 600

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Returns inwards $ 1 000

Return outwards $ 900

Bad debts written off $ 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:- 

1.  Purchase ledger control account for the year ended 31 st December 2002

2.  Prepare the sales ledger control account for the month ended 31 st Dec 2002.

Q 10. Ander Paul, a sole trader, provided the following information from his accounts for the

year ended 31st Dec 2003.

$

Credit sales for 2003 75 500

Credit purchases for 2003 68 900

Credit sales return for 2003 700

Total debtors at 1 Jan 03 8 500

Total creditors at 1 Jan 03 4 800

Prov. for bad debts as at 1 Jan 01 600

Discount Cash Bank Discount Cash Bank

Sales

Debtors 4 000

9 000 1 000

60 000

Debtors

(dishonored

Cheque)

Purchase

Creditors1 800

1 500

5 000

600

40 000

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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.  A revised provision for bad debts is to be 5%of the trade debtor’s balance as at 31st Dec 2001.

3.  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 Enables the counter-checking of sales ledger and purchases ledger individual balances.

v To check the accuracy of postings in the ledger.

v Provides easy reference for information.

v Localize errors.

v Enable the general ledger to be self-balanced.

FORMATS: