Control Accounts Lecture

Introduction

• Control Accounts: Summarize the accounts in the ledgers. Focus on personal ledgers (sales ledgers and purchases ledgers).

Key Ledgers

• Sales Ledger: Contains accounts of debtors (customers who bought on credit).
• Purchases Ledger: Contains accounts of creditors (suppliers who provided goods on credit).

Definition

• Control accounts summarize individual accounts in ledgers.

Example of Sales Ledger

• Accounts A, B, and C:
  • Balances Brought Down (A: $200, B: $0, C: $300)
  • Sales (A: $1000, B: $1500, C: $2000)
  • Discounts (A: $150, C: $100)
  • Cash Received (A: $500, B: $400, C: $300)

Balancing Individual Accounts

• A: Total $1200 (Balance Carry Down: $550)
• B: Total $1500 (Balance Carry Down: $1000)
• C: Total $2300 (Balance Carry Down: $2000)

Preparing Control Accounts

• Sales Ledger Control Account / Debtors Control Account:
  • Sum of individual balances brought forward (A, B, C)
  • Total Sales: $4500
  • Total Discounts: $250
• Purpose:
  • Checks arithmetical accuracy of entries.
  • Provides a summary balance of debtors for financial statements.

Purchasing Ledger Control Account

• Purchasers Ledger Control Account / Creditors Control Account:
  • Sum of individual creditor accounts.
  • Total Purchases
  • Total Discounts

Entries in Control Accounts

Sales Ledger Control Account

• Debits: Credit Sales, Bills Receivable, Dishonored Checks, Interest on Overdue Accounts
• Credits: Cash/Checks Received, Returns Inwards, Discounts Allowed, Bad Debts

Purchases Ledger Control Account

• Debits: Cash/Checks Paid, Returns Outwards, Discounts Received
• Credits: Credit Purchases, Bills Payable, Interest on Overdue Accounts

Setting Off and Transfers

• Set off: Contra payment to reduce both balances.
• Transfers: Moving balances between ledgers. Transferred balance appears opposite its current side.

Handling Balances

• Opening Balances: Debit for sales ledger, credit for purchases ledger.
• Closing Balances: Credit for sales ledger, debit for purchases ledger. A closing balance is often calculated from available information.

Practical Implications

• Error Handling: Errors can be corrected as required.
• Note Formatting: Keeping the above points in easy-to-access formats can help ensure correct and easy preparation of control accounts.

Conclusion

• Review the importance of practice and understanding, suggesting a practical example in the next session.
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