this is a lecture from open tuition to benefit from the lecture you should download the free lecture notes from open tuition calm we're now going to look at control accounts which another way practice of the checking the accuracy of recording and make her quite a popular the question in the exam and before I do let's have a very quick bit of revision of books of prime entry that we looked at several chapters ago until very very quickly here I mean if I go too fast and you've forgotten me to go back to the chapter on books of prime entry but if you remember if we make sales on credit the first thing we did was list every sale in our book of prime entry we listed in the sales day book all the receivables day book other receivables journal and so let's suppose we made sales to mr. a of 500 mr. B of 200 mr. C of 100 and then when we came to the end of the month we did two things for the double entry we took the total in the book 800 and the double entry for sales on credit we took the total we debited receivables with 800 and we credited sales I'm not going to show the credit entry but the double entry in the books debit receivables credit sales so we knew what the total receivables were at that stage but to keep track of who actually owes us that 800 remember we also had the receivables where we have a little account for each individual customer mr. a mr. B mr. C and we make a note on each account that a they owed us 500 be 200 at C 100 but remember the receivables Ledger was memorandum OB there was no double entry there that was just to keep track of who orders what the actual double entry in the norming of the general ledger debit total receivables credit sales and still revising obviously during the month we like to have received cash from customers so in the cash received book all right you have your total column want you to have all your analysis columns but every receipt would have been listed may make mr. a paid us 400 mr. B paid us the full 200 Amega mr. C as paid as nothing and so again at the end of the month we take the total of 600 and the actual double entry we'd be debiting the cash account and crediting receivables with the total cash received of 600 well there's natural double entry debit cash credit receivables but again we keep a note for each customer in the receivables ledger mr. a whoops mr. Ayers paid us 400 mr. B 200 mr. C zero and finally at the end of the month the balance on receivables was 200 no problem there's the total world that's what would appear on the statement of financial position but who owes is that 200 well we take a balance on each memorandum account mr. a owes us a hundred mr. B owes us nothing at all mr. C he opposes 100 and of course we can do our list balances what was it a what was this a hundred B owes us 100 CEOs a zero a total of 200 and obviously the two are the same they must be the same the this the total 200 is what appears on the statement of financial position there we don't need to show who owes us anything but for our own benefit we need to know who owes us the money we get that from the receivables ledger we know who it is we need to chase mr. a mr. B and so on okay there's nothing new there similar things will happen with the purchases on credit well we did all that in books of prime entry and I said at the time not only do we need to know who owes us the money which is why we need the receivables ledger but it does also act as a check but do you know for instance we could have added up the receivables journal wrongly we got a total correctly of 804 suppose we added up wrong and got 900 by mistake you know bear in mind in practice there are a lot more items so it will likely you might make a mistake and if we've got a total of 900 we'd have put 900 in total receivables we'd have ended it with a balance of 300 it's wrong however the receivables journal there sorry the receivables alleged every department we entered each figure separately five hundred two hundred one hundred the total was a relevant man and so receivables the ledger well we came to list the balances they'd still say two hundred the receivables account says three hundred we know there was a mistake and in practice it to be our job to go back through what we done and check everything here we'd find there was an addition mistake we'd put the total right and then things would agree so it does act as a check and you'll see later questions in the exam can effectively be having you do that check could I look it's not recessed in the exam in the following catches however all of that worse I keep saying been to be quick revision however there are three extra entries which I've not mentioned so far I think you'll find very easy now if the accessories that can occur which tend to occur in the sort of control account questions we come into and incidentally sorry I had mentioned but again I have in the earlier lecture total receivables the other name for it is receivables a ledger control account alright the names not as obvious but the control account simply means the total account its thought control account but because it controls the ledger the total should be the same as the total of the individual balances however as I say there are three extra entries which weren't really relevant until now who will be relevant in the questions we're coming to which it returns discounts contra entries now let me explain each of them with a little example first of all return us if you look at the next page settle page of the notes you'll see a little example he says suppose we sell goods for 500 on credit to mr. X a week later mr. X returns half the goods to us and I've said we accept the return you know you can't have customers just always sending guns back but perhaps mr. X decided he didn't need the whole we agreed to take them back well what's the entry when we sell the goods all right we do everything in total I know but just for this one item when we sell the goods we debit receivables with 500 and we credit sales no problem and usually that's the end of it obviously however if mr. whoever it is mr. X returns half the goods to us then assuming we accept it he doesn't hold for all of Neal Hills remainder and so we credit receivables with 250 half the goods and he now only owes us for the hafiz kept the balance they remained at 250 and the double-entry I'm not to be honest terming worried here because in the questions we coming out you will just be looking at total receivables over the double-entry you could I thought do two things but they always wanted to be debit sales in the d turns out we've only actually sold goods the half that he kept the 250 I said the alternative you could have a separate account for returns and debit returns but on the statement of financial position you would show the site of profit or loss you show sales or less returns so effectively we don't bet with net sales of 250 and 250 going so I think that's a very sensible one I hope you'd agree an easy one but it's in the questions that are coming that you know returns is one of these are extra entries that there could be okay that's one the next one discounts and our discount the two reasons why we may give discounts or receive discounts from suppliers one is it's quite common to offer a customer of discount for buying large quantities a quantity discount where maybe we normally charge hundred dollars for whatever it is we're selling but if somebody's prepared to buy a large amount we'll say okay you can have a 5 percent discount for being a good customer or a big customer now that is no problem if it's a quantity discount maybe they bought goods which normally cost a thousand because it's a large quantity maybe we give them a 10 percent discount and so we'd only actually charge them 900 that's the amount that to be on the invoice that's what we ended up charging them in which case debit receivables credit sales 900 exactly as normal the only effect of this discount is in the arithmetic it reduces the amount we actually invoice now that's no problem however what is more I want a more concerned with is what we call it early payment discount and what this is suppose normally customers take two months to pay and we say okay we allow you to take two months to pay but if you prepared to pay early if you'll pay after one month we'll give you a discount it encourages them to pay sooner obviously the sooner people pay us the better we get the cash in so we've got an overdraft Genaro the draft goes down we save interest but to encourage people to pay quick we say right we're invoicing you ever a thousand but if you play as quickly then you can have a discount any ones both words obviously we might offer the discount to customers to pay us early are equally our suppliers they may offer us a discount if we pay early and so look at the example still on the second page of a note in the discounts it says suppose we buy goods for a thousand on credit from mr. wine he offers us a five percent discount if we pay the invoice within one month now we receive the invoice the invoice we receive is for a thousand now whatever we might intend to do on the date we get the invoice we we're not going to be sure whether we're going to pay early or not we don't know how much cash is going to be available and so when we get the invoice we've got to record the full amount owing we're buying goods and so will credit payables with a thousand that's the amount in invoices that's the amount we might end up having to pay and we debit purchases now we have offered as a discount if we pay within a month if we don't pay within a month we'll have to pay the full thousand credit cash demmick Mabel's a thousand that's the end of it but here he says we do pay the account within a month and therefore we'll only pay 950 a 5% discount the invoice is a thousand so with five percent fifty pounds discount dollars Robert so the cash flow pays 950 and when we pay credit cash debit payables 950 however we obviously can't leave it like that if we leave it like that it looks as though we still only remaining fifty and of course we don't because we paid early we've got that discount and so we need to clear off that fifty how are we going to clear it well if we debit payables with fifty that's now correct obviously we don't actually know anything the double-entry if we debit an account for discounts received so debit Able's credit discounts received and it's like a little bit of extra income the cost of the goods was a thousand debit purchases a thousand that will appear on the statement of profit alas but we might not a little bit of what you might call over income if you appear on our statement to profit or loss discounts received 50 so again I hope the entry makes sense and again think about what I was saying before about the book sacramentary not only will we need to make that entry in the nominal the general ledger to make sure we end up with the correct total payables but we'll also have to make the same entry even mr. x's account in the Farrell's ledger to show that mr. X isn't actually owed anything and if any first terminology is concerned if we gather kif a discount from a supplier we call it a discount we see you if we give a discount to a customer we call it a discount allowed now but in fact the way we deal with discounts given to customers it's a little bit different rules have changed from what they used to be and I'll deal with that in a later chapter finally please I said there were three extra entries you might see and there's lots of questions that are coming what might look an unusual one something called a contra entry and to explain what it is and how we deal with it look at the example on the third page of the notes it says suppose we sell goods on credit to mr. Zed for 800 well if we sell goods on credit without going back all the way through the books of prime entry and so on if we selling goods on credit on total receivables at 800 demmick receivables credit sales 800 a lot minister of credit entry and of course mr. cents accounting the receivables a ledger we make a note Labs mr. Zed we make a note to the Judas 800 no problem nothing new however Mr said also happens to be a supplier and we buy grease from him on credit may I found the wrong but it does the concern of the year people that do buy from and that you sell to and so it says Mr sair helps to be a supplier we buy goods from him for a thousand on the credit well what happens when we buy goods if you buy goods on credit you credit payables here it was a thousand and debit purchases and of course at the same time we'll make a note in the payables ledger on mr. Zed's account that we owe a thousand I thought we always do when we sell our credit when we buy on credit there in the interests and of course even though it's the same person mr. Zed may pay us the 800 debit cash credit receivables we may pay mr. Zed 800 thousand rather credit cash debit payables no problem but because it happens to be the same person we might agree with mr. said that instead of him paying us and then us paying him why don't we just agree that oh he owes us 800 we're a thousand we'll just pay you the difference of two hundred and that's what it says here we agree with mr. said that instead of him paying us in full and us paying him in full we'll pay to him the net amount of 200 the bookkeeper gonna do we're paying a supplier whenever we pay a supplier credit cash debit payables and of course make a note um mr. Sudz account so so far nothing different whenever we paid cash to a supplier for goods on credit credit cosmetic payables but of course we can't leave it like that if we leave it like that whoever's in charge of receivables we'll be chasing mr. Zed for that 800 and was everything whoever's in charge of payables they'll think oh we are 800 and the dangerous will pay him when we've agreed not to and so once we agreed that we were going to cancel one against the other we better make sure that we tell the bookkeepers responsible what we've done and that we're not old eight hundred and we don't owe 800 either and so what's the entry what entry is going to be needed to cancel those eight hundreds sure leaf will credit receivables mr. Zed doesn't owe us anything that's what we've agreed and at the same time will debit payables and again we don't owe anything which is what we've agreed and that entry is called a contra entry I call a pure bookkeeping entry you know there's been no transaction of 800 went paid anything he hasn't paid as anything but we had to have that debited credit to put it right to cancel what they owe us with what we owe them and the entry is always the same we always debit payables to reduce what we owe and the double entry we credit receivables to reduce what they owe us so though it's important you see why we're doing it and help up make that clear in fact it's easy sentry role to deal with because it's always the same if ever there's a contra entry you're reducing receivables reducing payables debit payables credit receivables and of course not only must you make the actual entry in the general nominal ledger total receivables total payables but we better make a note of tell the bookkeepers to make a note in those evils a ledger and the payers larger 800 800 so in both cases the account with mr. said ends up with zero balance Safa contrary it's a matter of interest if you have a seat at work the symbol we tend to use is C with a line through it for the examiner that's irrelevant to you because he sees with a line through it but any mention of a contra entry Castle receipt was pencil payables debit payables credit receivables all right well I hope each of those make sense I did say at the start of this lecture there are two types of questions you can be asked on control accounts total receivables total parables and so in the next two lectures I'll go through an example of each of the two times