Control Accounts Lecture

[Music] good day welcome to another session of fog tutorials today we are going to look at control accounts what control account is all about so we are going to look at control accounts and this is basically controlling the accounts in the ledgers now for the purpose of today's lesson our focus is going to be more on personal ledgers and so we are going to look at the personalities which are the sales ledger and then the purchases ledger and then we are going to prepare contra accounts for them and so control accounts are basically accounts that are prepared in summarized form it's like a summary of the lecture and so what we are going to do when we take the sales ledger what are the sales ledger content what accounts are in the sales ledger what accounts are in the purchases ledger now those individual accounts that are in the sales ledger we sum them up we summarize it into one big account and that summary of accounts that is what we call the control account and so control accounts are summaries of the individual accounts that are contained in the best managers and so the sales ledger contains accounts of debtors or yeah debtors and then the purchases ledger contains accounts of creditors and so basically let's just start revising from our personal ledgers where we have the sales letter and then we have the purchases letter so these two are our personalities the sales ledger and the prejudices ledger the personal legends are the sales ledger and the purchase ledger now take note that the sales ledger contains account of debtors veterans accounts are found in the sales letter a purchase ledger contains accounts of creditors so that ledger contains credits accounts and so when we talk of the sales ledger your mind should be on letters accounts when we talk about the prejudices like that it should drive your mind to creditors accounts now purchases and sales ledger does not mean that they contain accounts of sales and purchases respectively no but then they contain the account of debtors customers who we sold goes to on credit and these are suppliers that supply those rules of credit and they we open their accounts in these respective ledgers so what we actually mean is that when we talk about control accounts it is about adding up the accounts in a ledger and so let's assume that we have these three accounts in the sales letter this is accounts a account b and account c which are all in the fields ledger and so once the accounts are in the sales like that they are the test accounts and so let's assume that there was a balance board down of 200 in a there was a balance brought down about forward of 300 in z and there was no balance in b and then let's assume that there were some seals that were made to a1 000 there were some seals that was me to see for 2 000 and there was some sales that were made to be for 1 500. let's assume that there were some discounts enjoyed by a for 150 there was no discount there but let's assume there was another discount here 400 and then there was cash received of 500 from a cash of 300 from c and then cash of 400 now let us assume that these are the only transactions that happen within the period for these three letters accounts and so what we are going to do is that let us try balancing of these accounts in the ledger and so we have 1200 here and then we have 1200 so the balance carry down will be 550 and so that is how it's going to be so we try balancing off this account as well where we have 2 300 as a total and then 2 000 series as the balance carried out and the same applies to account b there will be a balanced carry down of 1 000. okay so ladies and gentlemen let us assume that this is the sales letter three accounts are closed in the sales letter this is the duty of the accountant now to prepare a controlled account so how do we go about the control account so because this ledger is a sales letter then the control accounts we are going to prepare for this ledger is called sales ledger control account and so i'll head i'll bring ahead in our sales letter control account now let us also be mindful that now it is that test account that i found in the sales letter so instead of calling this sales ledger control account i could have also called it debtors control accounts or debtors ledger control accounts okay so that is basically what we are talking about so uh let's assume that currency is in dollars and then we want to prepare control accounts so looking at the control accounts i told you that we are going to add up every account here and so we start from the left hand side of the account coming to the left hand side there was a balance of forward for a there was no balance word for it for b and there was a balance forward for c and so what we are going to do is that we add up all the balance world forwards and we bring it and so when we come here we see balance more forward 200 there is nothing for b so 300 for c so 200 plus 300 will give us 500 that would be the balance well forward for the control account how did i come by this 500 i have added up every balance brought forward that i see then i come to the the receives there is also sales so when i come to the next item which is sales there is one thousand forty one thousand five for b that makes two thousand five hundred and then there is uh two thousand for c that makes it four thousand five hundred and so i will come to the control account that will seize things and then i'll put the total of 4 500 here and so that is what i'm going to do for every single item when i get to the credit side there was this counts here for a and b and there was no discount for c so that if we just pick the two discounts and we call it discounts and the total will be 250. and so ladies and gentlemen the idea of controller count is to add up the individual entries in the letter a so controller count is basically the summary of the ledger and that is what we do and so because we are adding up everything we can also call it total details account this is a letters account this is a greatest account this is a lessons account so it means that the control account is basically a summary of the debtors accounts or a total of the debtors accounts and that means that we can call control accounts like this as a two-third that test account or we can call it the sales ledger control account or we can call it the controlled account so just to let you understand the concept that is where we came from the idea of the control account now why do we prepare the control account the control account is prepared so that we will check the arranged medical accuracies of the entries that are made in the individual ledgers it is also important because it will give us a a peak or a final balance of debtors it gives us the debtors balance that is at a glance so that we can even use that information in a preparation of our financial statements there are a lot of advantages for preparing control accounts and so that is basically what we are going to do the same will apply to the purchases ledger control account when i purchase this ledger control account we say it contains accounts of creditors and so we will have individual creditors accounts in there and when we want to prepare control accounts our job is to sum up all the items in the control account and then we prepare a very big creditors account or creditors control accounts and so creditors control account is also called purchases ledger control accounts now that is basically what we are going to do now it means therefore that when you are preparing a sales ledger control account put it at the back of your mind that it is a test account while preparing a purchase ledger control account put it at the back of your mind that it is creditors account that you are preparing and so if you know how to prepare a debtor's account then you should know how to prepare the control account because most of the time with this type of topic what the examiner will do for you is that they will give you a long list of balances which have been added already from the legends and so your job is to prepare the control account by showing which one will be debited and which one will be credited and that is what i want you to understand that any balance or any item that will be debited to a normal debtor's account should be debited to the controller consumes legal control accounts anything that will be credited to the debtor's account should be credited to the sales ledger function account and it's vice versa for the purchases ledger control account and so that is basically what we are going to do so now what we are going to do is that we are going to look at the formats for the sales ledger and the phase ledger control accounts so i'm going to put up two different t accounts to try and make us understand the format so let's record this sales letter control account which is also the tutor letters account and then let me also call another one that purchases ledger control account which is also the total creditors account so what we are going to do now is that we are going to look at the format for the tube and so we are going to look at the items that will go on the debit of each and on the credit of each remember that i've already told you that this is just the letters account it's just a creditors account and so you don't have to stress yourself if you really know your double entry very well you should know which ones will be debited and which ones will be credited for that test and creditors account and that should guide you in your preparation of control accounts now i will begin with the balances now their normal place for then a balance for latest accounts is the debit side and then the creditors account also has a credit test or a credit balance sorry the creditors account also has a credit balance and so this should be the normal balance however it could be that one of the accounts remember that these are so many accounts being put together so it could be that one of the accounts may have a debit balance in the purchases ledger control account and one of them or two may also have a credit balance which is not the normal balance but then there are some a lot of factors that can cause that and so when you see a debit balance you definitely bring that onto the debit side which explains the reason why you can have both a debit balance and a credit balance in the control accounts and so the same applies to the sales ledger control account there will be may also be a credit balance in the account for example now if you if if a debtor overpays this account with just with anticipation that in future when he borrows or comes by on credit then that amount they have over a period of sets then it means that at the moment at this moment that they have not come to perform that transaction in the future the company owes the data it's possible for a company to own the data because the debtor has overpaid the account and what happens is that it will be a credit balance on the debtors account so when we are starting the year and the debtor has a credit balance that will appear on the credit side and that is why i said that there can be an opening debit balance and an opening credit balance for the sales like that control account and there could also be same for the creditors control accounts okay so now we come back now what are some of the things that will appear in the sales ledger controller accountant purchases ledger control account usually i tell my students that when you go to the example you are asked to prepare both accounts it is always advisable to open the two accounts together at once like this and as you read ahead you begin to put them where they belong by the time you finish reading to the end of the question you are finished solving the question as easy as that and so when you see um you know for a letter before a debtor can become your debtor you should have made a credit sales to that person and when you do credit sales we credit uh sales accounts and debit deduction there will be sales on the number side here but these sales here is credit sales and so let me be a little specific to see that credit sales will appear here it means that cash sales will not be in a controlled account because the double entry for cast sales is debit card cash and credit sales and when you are debiting cash and crediting sales there is nothing about the debtors account but credit sales will be debit to the debtor and credit sales and that is where we are debiting and when we are debiting here then what about credit purchases credit purchases will also appear on the credit side of the purchases ledger control account the double entry for credit purchases is debit to the purchases account and credit to the creditor and that is why i am bringing credit purchases here on the credit side and one thing i want you to observe as we move along is that they move in opposite direction while the credit sales is debited here in the social ledger control account the credit sales is credited so it means that this where the opposite of the credit sales will be recorded in the opposite side of the purchases ledger control account and so that is it where the credit purchases the lenders also assume that there are returns returns inwards and return outwards now returns inwards reduce the the sales value what happens that when there is returns data returns goods the amount the oops will also reduce and so return invoice is a reduction of the test balance and therefore returns inwards will appear here on the credit side of the control account because the double entry for returning was his debits returning once and credits the debtors account and therefore returns outwards who also appeared here on the damage because returns outwards also reduce the purchases figure yet again you see that they are moving in opposite directions while this is credited the opposite of it will be debited elsewhere so i'm trying to use similar entries and show you the opposite entries now let us look at discounts discounts allowed and discount received one of them relates to the test one of them relates to creditors discount allows is a reduction of the debtor's balance discount received is a reduction of creditor's balance and so discount allowed because this the debtor's balance is upheld on the debit side when it's reducing it should come to the credit and so we record discounts allowed on the credits of the letters control account and that means that discounts received will also be on the level because as usual they will move in an opposite direction i believe that when we study this with this kind of opposite the concept of the control account will look a little easier for us as we we try and understand more and so that is how discounts will also be treated in their control accounts and then let's just look at cash now the data is supposed to pay cash to the business we the business are supposed to pay cash to their creditors and so what happens is that when a creditor or when we pay a credit card we call it cash speed to creditors when the creditor or the letter also piece has cash received now it could be cash physical cash or cheque whether it is physical cash or cheque it is payment and so when we are receiving payment already we have said that this is where the net test balance is standing and the credit of the this account is where their creditors balance is also standard so any payment should reduce the balance and so when we are receiving cash or check from the data then it should be recorded on the credit side to reduce the balance in the same way when we also paying cash to the creditor you should be recorded on the damage to reduce the value of creditors and so we are going to see cash or check received here and here we are going to see cash or checks paid on their debits because both of them will reduce their balances and so cash paid here and then cash received on the credit of their sales ledger control accounts so yet again these two are opposite items and they appear on opposite sides of their controller account okay and so let us look at this analyte checks this anna checks now mind you that if you receive a check from a debtor you record it on their credit side to reduce the debtors balance and so when you go to the bank and they disanother check you just have to come back and restate the debt it means they have not paid you yet and so we are going to do that once check received this year then this anna checks will appear here on the debit as we will have this annette there's another text here showing that we have reduced we have increased or restated back the balance and so this analytic checks will be recorded on the debit of the sales ledger contract of course there could be this under text also here which should be recorded on their credit but then because we are paying this cheque we normally assume that we will pay the correct check and if we know that we have made the wrong check payment we don't have money in our accounts will not pay so in the questions you don't usually see this under checks for the creditors control account however in case you meet them it's opposite that will be a discounted check recorded on the credit side but then just be sure that you understand that this this check is relating to debtors or creditors but by default normally it relates to debtors but then if the person is so specific that we also would check to the creditors and it was on it then of course we record that on the credit side of the account all right then we can also talk about bills now bill a bill of exchange can also be accepted for payment and so this bill can either be bills receivable or bills payable now boost receivable comes from the side of the debtor who is giving the bill for payment and bills payable is also coming from the creditor the side of the creditor where we are also going to pay whether we give to the creditor and so when it is accepted by us or the bill's payable is accepted by the creditors then it means that we assume that it is reducing the balance of each side and so that means that bill's receivable just like a cheque will be recorded on the credit side of the sales ledger control account so that it will reduce the balance of their debtors account and through bills payable which is also opposite will also appear here so that it will also reduce the creditor's balance similar similarly the bills also can be disarmed as when bills are receivable and later we find out that they are disadded opposites it's also real estate that that so we have this earned bills receivable also here and that means that there will be discerning spills payable also on the opposite side and so i'm sure that we are following the way we are trying to get the understanding from the opposite of our sites and then let me talk about bad days now but that may relate only to the debtors because we people owe us and we assume oh is a certain that they may not be and so we write them off as bad mind you that prohibition for bad debts will not appear in their control accounts it's only the bad debts that are written off that will appear and so bad that will also reduce the debtors balance and so we are going to have bad debts here on the credit side of the letters control account but then we may not have an opposite here because that will violate the prudence concept if you want to agree that this year here there can be a death that is bad then you that you are only the creditor you are intentionally saying you know p that one is not acceptable in accounting and so badly remain here alone and if we are fortunate and those that are recovered when we write them off and later their letters come to peak then we will have to restate them first and so but that recovered will also be on their debit side of their sales leisure control accounts so they will be banned and there can be bad debts recovered so i just want you to get the understanding very very well and then there could be interest as well now there could be interest in a sense that there can be a timeline for payment and some patches and similar agreements have some conditions that if you don't pay within an agreed period of time they charge you interest on the debts you are owed and so if we have such agreements with the debtor and they don't pay within the stipulated time we have a right to charge interest and so when interest starts you yourself you have not been able to pay and we have charged you interest in addition so it's going to further increase your debts so interest on overdue the tax account will also appear on the debit side because it is going to increase their debt so we can have interest on overdue accounts which is also going to be debited similarly we can also have interest charged by the creditor on our value account also being credited to the creditors control account and that is also going to increase the amount we owe okay and then let us also look at a refund let us assume that the debtor has paid you an amount of cash and later i realized that it was not supposed to be paid so you are refunding it back or a creditor you have paid their credit and creditors will refund them so all those who mean there is an opportunity that should be made now when we receive cash or check from the data we credit the debtor's account and so when we are refunded it should be debited that is just the opposite and so this will be refund to customers or debtors on the debit side and there could also be a refund buy here is to here it is by their creditors to ask so this will be on the credit side to reverse the cash payment that we also have made and so that is equally an opposite treatment that you should take note of then we call something loading charges now no team charges relate only to their purchases like that control account now this is the meaning of noting charges if you are a supplier most of your customers can note ahead of time the order of goods so sometimes when you are going in before you even go in and bring in the stuff people will just come and make a note that when you come leave me 100 don't sell it make sure you reserve 100 for me make sure you reserve 200 quantities for me those kind of things when they happen sometimes they are charged before just for looting it's like taking your phone to the repairs when you go to the request for your laptop most of the time the repair or just just for accepting your item into the shop may just charge you um ten cities or ten dollars or whatever just for accepting your item before after they are able to repair they give you the actual appeal and so just that is just about noting chance it's something that must be done before the real transaction takes place it's just for loyalty to for accepting that i'm going to deliver this booth to you you will note and so i charge you for that now if the supplier is a supplier that you do continual business with you may not necessarily have to pay every time you make the order but what you do is that once you make the order you credit your account and the supplier will indicate that you owe them an amount and because you have no pay becomes a debt to you the business and so it is going to increase the amount you owe to the supplier and so no team charges will appear on the credit side of the purchases ledger controller can buy it doesn't come anywhere and there is no opposite for that in the sales ledger control account if we want to include that it will still violate the prudence concept and though we don't so we don't do that just like that okay and then we can also look at errors there could be errors made anywhere which could be corrected and for errors corrected it would be on the debit credit of the sales letter or either debits or credits of the purchases ledger control account errors can be errors and so i don't really want to include errors in my format but then once we have already understood the principle of correcting of errors when errors are made we are told about errors i'm sure we'll be able to know which place to correct the errors then the last two things i may want to talk about for now even though you may meet other things that i didn't mention is set off and then the transfers now set off will appear on both sides of the controller above account sorry set off will pay on both accounts now set off is a contract payment it's like you owe me and i owe you and so let's cancel it off and so it may not be the same the operator but then what happens is that there could be a debtor owing you an amount and at the same time the person is your creditor and so what happens is that you may just want to set off the amount that you owe so if you are owning me 1 200 and i am owing you 500 so we can just say okay let's set up the 500 against each other so that your balance that i'm going remains 700. and so when that happens i have to reduce the balance here that you owe me and you also have to reduce the balance here that i will buy the 500 that is mutual and that is what we call a setup and so what we are going to do is that set off because it is reducing both balance should appear on the credit side of the sales ledger control account and at the same time will appear on the debit side of the purchases ledger control account now when you are solving the question you are going to see just one figure for setup but when you are treating it it should be treated twice this week because it is going to reduce both balances so that the final balance will stand in the books that is how we treat the setup and then transfers this is why i want you to pay attention very well now transfer means that you are taking a balance from one place to another place it could be any balance that you are transferring now we can transfer a sales ledger balance to the purchases ledger and we can also transfer a can be pestici by transferring a debit balance in the sales ledger to the uh sales letter sorry and we can also transfer a credit balance the same applies here so what happens is that you should be careful and look at which balance we are transferring and that will guide you onto the right entries to be made if we are told that we are transferring a defect balance in the purchases like that to the sales letter then what happens is that we are going to remove that damage balance from the petitions letter and make that debt balance appear on the debits of the sales letter if we are transferring a credit balance from the sales ledger for example it means that because it's a creditless letter sorry because it is a credit balance that we are transferring we should remove it and it should appear on the credit side of a business ledger if you are transferring a debit it should appear in the debit if you are transferring a credit you should appear the credits of whichever account you have transferred and by the double entry every debit center should have a corresponding credit center so it means that if the balance is on the credit side of the sales ledger control account and you are transferring it to the purchase ledger contract account then of course you have to first of all write it at the end side so that it will offset this balance and cancel it all from this account and then because you have debited it the corresponding view appear on the credits of the purchases like that control account and that is how it's supposed to be done and so mind you if the question says that sales let that debit balance transfer to purchases like that sales letter debit because it was a sales letter damage then we start recording from the credits so that to upset it we are not seeing the debit it's imaginary but once they are saying it is a job balance being transferred start recording it from their credits if they are saying it is a credit balance being transferred start recording from the debit that is what we do and so if we are told that a sales ledger credit balance of 500 for example is transferred to the purchases like that because it is a credit balance i'll first of all come to the debit c transfer two purchases like that transferred to an output 500 but we were told it was a credit balance but then our recording faced on the debit cards he transferred to purchase this lender then the corresponding entry will come to the credit of the petitions ledger control account and i will see transfer from serious ledger 500 this is how transfer is supposed to be done so no matter which side that you are told just make sure that you first record at the opposite side and then bring the corresponding entry to the other side and so i may not add the transfers to the format but when you are giving transfers to me this is how you're going about it if it's a credit balance you debit expectancy transfer to purchase this ledger and then you bring it and say transfer from the sales ledger so that is how we are going to look at the transfers also and so what i mean is that there is no specific place nobody should tell you that transfers will always appear here or there no transfers are done with the understanding of the double entry principle and that is what we do we run it out to people and that is basically what the transfers are about then i'll end with balancing off control accounts if you want to balance off a control account normally what confuses students is that we are giving the closing balances some some of them are one of them and so because when we're starting we have two balance records for each of them there could be a double balance carried down and so what the question will do is that most of the time they will give you one of the close imbalances and then you will find the other one of them if they don't give you then obviously you are just going to have just one balance and so they will give one and normally they give the ones that are abnormal the balances that are not the normal balances we know that sales ledger has a debit balance and so when they are finalizing the immediate issue of the credit balance of sales ledger at the end so that you will find your own debit balance that is what we do and so if they tell you that sales ledger closing balance at the end credit balance sorry inclusive balance of sales letter credits at the end is let's say 1 000. we know that sales ledger has a debit balance and so if it is a credit balance then you do that first before you find your normal debit balance but i want you to understand something when we say a balance on the account we have the balance carried down we have the balance brought down which one represents the balance of the account is it the balance but not the balance carry down obviously is the balance brought down the balance brought down is where we see it has a balance not the carry down and we cannot get the balance brought down without getting the balance carried down first as you if we are told that sales ledger credits balance at the end now when we are beginning and we we are told that sales like that credit balance we take it to the credit side sales leisure debit balance we take it to the debit side but when we are ending and we are told sales letter credits balance credit balance means balance brought down not balance can be done so if they are ending anything credit balance you shouldn't put the balance carry down on their credit the balance carry down should be at the debit side so that broad time will eventually appear on their credits because credit balance that they are referring to is not that carried down but they brought down if you make a mistake and say because they said it is a closing credit balance i'm going to put the balance carry down on the credit then eventually your balance goes down will be on the debit that will make it a debt balance and so when we are beginning the account and we are told credit balance we put it on their credit debit balance we are picking things for the debit but when we are ending and we are told credit balance we first put it on the debits as carried down before eventually it appears on the credits as when we say sales letter credit balance that amount will be a debit card down here so that after closing of the account we will have the same amount of these 500 who appeared here as balance brought down 500. so this means that this account this is a credit balance but then because we hadn't closed the account by the time we were preparing we have to first put it as a carry down on the debits and so mind you that the ending is not at the same at the beginning for the ending when you are told the balance put it first at the opposite side as a carry down before you bring it down and then when you find your difference you'll find the other side for the blood by carry down otherwise you may end up putting a carry down some way and then you end up getting another carry down and so we conclude by saying that there could be a balance carried down at both sides but remember that one of them will be given to you in the question and then there will be a balance brought down at both sides as well the same applies to the creditors control accounts so ladies and gentlemen this is the format for the control account in our next video we are going to look at a question we will pick a question and try and understand some of these things if you didn't really get some of my explanations well don't worry in our next video i will try and use a practical question to make you understand it better and i'm sure you have benefited from this video remember to subscribe to the channel and then share comment and let us know your views and let others also have a benefit of this video thank you [Music] bye you

[Music] good day welcome to another session of fog tutorials today we are going to look at control accounts what control account is all about so we are going to look at control accounts and this is basically controlling the accounts in the ledgers now for the purpose of today&#39;s lesson our focus is going to be more on personal ledgers and so we are going to look at the personalities which are the sales ledger and then the purchases ledger and then we are going to prepare contra accounts for them and so control accounts are basically accounts that are prepared in summarized form it&#39;s like a summary of the lecture and so what we are going to do when we take the sales ledger what are the sales ledger content what accounts are in the sales ledger what accounts are in the purchases ledger now those individual accounts that are in the sales ledger we sum them up we summarize it into one big account and that summary of accounts that is what we call the control account and so control accounts are summaries of the individual accounts that are contained in the best managers and so the sales ledger contains accounts of debtors or yeah debtors and then the purchases ledger contains accounts of creditors and so basically let&#39;s just start revising from our personal ledgers where we have the sales letter and then we have the purchases letter so these two are our personalities the sales ledger and the prejudices ledger the personal legends are the sales ledger and the purchase ledger now take note that the sales ledger contains account of debtors veterans accounts are found in the sales letter a purchase ledger contains accounts of creditors so that ledger contains credits accounts and so when we talk of the sales ledger your mind should be on letters accounts when we talk about the prejudices like that it should drive your mind to creditors accounts now purchases and sales ledger does not mean that they contain accounts of sales and purchases respectively no but then they contain the account of debtors customers who we sold goes to on credit and these are suppliers that supply those rules of credit and they we open their accounts in these respective ledgers so what we actually mean is that when we talk about control accounts it is about adding up the accounts in a ledger and so let&#39;s assume that we have these three accounts in the sales letter this is accounts a account b and account c which are all in the fields ledger and so once the accounts are in the sales like that they are the test accounts and so let&#39;s assume that there was a balance board down of 200 in a there was a balance brought down about forward of 300 in z and there was no balance in b and then let&#39;s assume that there were some seals that were made to a1 000 there were some seals that was me to see for 2 000 and there was some sales that were made to be for 1 500. let&#39;s assume that there were some discounts enjoyed by a for 150 there was no discount there but let&#39;s assume there was another discount here 400 and then there was cash received of 500 from a cash of 300 from c and then cash of 400 now let us assume that these are the only transactions that happen within the period for these three letters accounts and so what we are going to do is that let us try balancing of these accounts in the ledger and so we have 1200 here and then we have 1200 so the balance carry down will be 550 and so that is how it&#39;s going to be so we try balancing off this account as well where we have 2 300 as a total and then 2 000 series as the balance carried out and the same applies to account b there will be a balanced carry down of 1 000. okay so ladies and gentlemen let us assume that this is the sales letter three accounts are closed in the sales letter this is the duty of the accountant now to prepare a controlled account so how do we go about the control account so because this ledger is a sales letter then the control accounts we are going to prepare for this ledger is called sales ledger control account and so i&#39;ll head i&#39;ll bring ahead in our sales letter control account now let us also be mindful that now it is that test account that i found in the sales letter so instead of calling this sales ledger control account i could have also called it debtors control accounts or debtors ledger control accounts okay so that is basically what we are talking about so uh let&#39;s assume that currency is in dollars and then we want to prepare control accounts so looking at the control accounts i told you that we are going to add up every account here and so we start from the left hand side of the account coming to the left hand side there was a balance of forward for a there was no balance word for it for b and there was a balance forward for c and so what we are going to do is that we add up all the balance world forwards and we bring it and so when we come here we see balance more forward 200 there is nothing for b so 300 for c so 200 plus 300 will give us 500 that would be the balance well forward for the control account how did i come by this 500 i have added up every balance brought forward that i see then i come to the the receives there is also sales so when i come to the next item which is sales there is one thousand forty one thousand five for b that makes two thousand five hundred and then there is uh two thousand for c that makes it four thousand five hundred and so i will come to the control account that will seize things and then i&#39;ll put the total of 4 500 here and so that is what i&#39;m going to do for every single item when i get to the credit side there was this counts here for a and b and there was no discount for c so that if we just pick the two discounts and we call it discounts and the total will be 250. and so ladies and gentlemen the idea of controller count is to add up the individual entries in the letter a so controller count is basically the summary of the ledger and that is what we do and so because we are adding up everything we can also call it total details account this is a letters account this is a greatest account this is a lessons account so it means that the control account is basically a summary of the debtors accounts or a total of the debtors accounts and that means that we can call control accounts like this as a two-third that test account or we can call it the sales ledger control account or we can call it the controlled account so just to let you understand the concept that is where we came from the idea of the control account now why do we prepare the control account the control account is prepared so that we will check the arranged medical accuracies of the entries that are made in the individual ledgers it is also important because it will give us a a peak or a final balance of debtors it gives us the debtors balance that is at a glance so that we can even use that information in a preparation of our financial statements there are a lot of advantages for preparing control accounts and so that is basically what we are going to do the same will apply to the purchases ledger control account when i purchase this ledger control account we say it contains accounts of creditors and so we will have individual creditors accounts in there and when we want to prepare control accounts our job is to sum up all the items in the control account and then we prepare a very big creditors account or creditors control accounts and so creditors control account is also called purchases ledger control accounts now that is basically what we are going to do now it means therefore that when you are preparing a sales ledger control account put it at the back of your mind that it is a test account while preparing a purchase ledger control account put it at the back of your mind that it is creditors account that you are preparing and so if you know how to prepare a debtor&#39;s account then you should know how to prepare the control account because most of the time with this type of topic what the examiner will do for you is that they will give you a long list of balances which have been added already from the legends and so your job is to prepare the control account by showing which one will be debited and which one will be credited and that is what i want you to understand that any balance or any item that will be debited to a normal debtor&#39;s account should be debited to the controller consumes legal control accounts anything that will be credited to the debtor&#39;s account should be credited to the sales ledger function account and it&#39;s vice versa for the purchases ledger control account and so that is basically what we are going to do so now what we are going to do is that we are going to look at the formats for the sales ledger and the phase ledger control accounts so i&#39;m going to put up two different t accounts to try and make us understand the format so let&#39;s record this sales letter control account which is also the tutor letters account and then let me also call another one that purchases ledger control account which is also the total creditors account so what we are going to do now is that we are going to look at the format for the tube and so we are going to look at the items that will go on the debit of each and on the credit of each remember that i&#39;ve already told you that this is just the letters account it&#39;s just a creditors account and so you don&#39;t have to stress yourself if you really know your double entry very well you should know which ones will be debited and which ones will be credited for that test and creditors account and that should guide you in your preparation of control accounts now i will begin with the balances now their normal place for then a balance for latest accounts is the debit side and then the creditors account also has a credit test or a credit balance sorry the creditors account also has a credit balance and so this should be the normal balance however it could be that one of the accounts remember that these are so many accounts being put together so it could be that one of the accounts may have a debit balance in the purchases ledger control account and one of them or two may also have a credit balance which is not the normal balance but then there are some a lot of factors that can cause that and so when you see a debit balance you definitely bring that onto the debit side which explains the reason why you can have both a debit balance and a credit balance in the control accounts and so the same applies to the sales ledger control account there will be may also be a credit balance in the account for example now if you if if a debtor overpays this account with just with anticipation that in future when he borrows or comes by on credit then that amount they have over a period of sets then it means that at the moment at this moment that they have not come to perform that transaction in the future the company owes the data it&#39;s possible for a company to own the data because the debtor has overpaid the account and what happens is that it will be a credit balance on the debtors account so when we are starting the year and the debtor has a credit balance that will appear on the credit side and that is why i said that there can be an opening debit balance and an opening credit balance for the sales like that control account and there could also be same for the creditors control accounts okay so now we come back now what are some of the things that will appear in the sales ledger controller accountant purchases ledger control account usually i tell my students that when you go to the example you are asked to prepare both accounts it is always advisable to open the two accounts together at once like this and as you read ahead you begin to put them where they belong by the time you finish reading to the end of the question you are finished solving the question as easy as that and so when you see um you know for a letter before a debtor can become your debtor you should have made a credit sales to that person and when you do credit sales we credit uh sales accounts and debit deduction there will be sales on the number side here but these sales here is credit sales and so let me be a little specific to see that credit sales will appear here it means that cash sales will not be in a controlled account because the double entry for cast sales is debit card cash and credit sales and when you are debiting cash and crediting sales there is nothing about the debtors account but credit sales will be debit to the debtor and credit sales and that is where we are debiting and when we are debiting here then what about credit purchases credit purchases will also appear on the credit side of the purchases ledger control account the double entry for credit purchases is debit to the purchases account and credit to the creditor and that is why i am bringing credit purchases here on the credit side and one thing i want you to observe as we move along is that they move in opposite direction while the credit sales is debited here in the social ledger control account the credit sales is credited so it means that this where the opposite of the credit sales will be recorded in the opposite side of the purchases ledger control account and so that is it where the credit purchases the lenders also assume that there are returns returns inwards and return outwards now returns inwards reduce the the sales value what happens that when there is returns data returns goods the amount the oops will also reduce and so return invoice is a reduction of the test balance and therefore returns inwards will appear here on the credit side of the control account because the double entry for returning was his debits returning once and credits the debtors account and therefore returns outwards who also appeared here on the damage because returns outwards also reduce the purchases figure yet again you see that they are moving in opposite directions while this is credited the opposite of it will be debited elsewhere so i&#39;m trying to use similar entries and show you the opposite entries now let us look at discounts discounts allowed and discount received one of them relates to the test one of them relates to creditors discount allows is a reduction of the debtor&#39;s balance discount received is a reduction of creditor&#39;s balance and so discount allowed because this the debtor&#39;s balance is upheld on the debit side when it&#39;s reducing it should come to the credit and so we record discounts allowed on the credits of the letters control account and that means that discounts received will also be on the level because as usual they will move in an opposite direction i believe that when we study this with this kind of opposite the concept of the control account will look a little easier for us as we we try and understand more and so that is how discounts will also be treated in their control accounts and then let&#39;s just look at cash now the data is supposed to pay cash to the business we the business are supposed to pay cash to their creditors and so what happens is that when a creditor or when we pay a credit card we call it cash speed to creditors when the creditor or the letter also piece has cash received now it could be cash physical cash or cheque whether it is physical cash or cheque it is payment and so when we are receiving payment already we have said that this is where the net test balance is standing and the credit of the this account is where their creditors balance is also standard so any payment should reduce the balance and so when we are receiving cash or check from the data then it should be recorded on the credit side to reduce the balance in the same way when we also paying cash to the creditor you should be recorded on the damage to reduce the value of creditors and so we are going to see cash or check received here and here we are going to see cash or checks paid on their debits because both of them will reduce their balances and so cash paid here and then cash received on the credit of their sales ledger control accounts so yet again these two are opposite items and they appear on opposite sides of their controller account okay and so let us look at this analyte checks this anna checks now mind you that if you receive a check from a debtor you record it on their credit side to reduce the debtors balance and so when you go to the bank and they disanother check you just have to come back and restate the debt it means they have not paid you yet and so we are going to do that once check received this year then this anna checks will appear here on the debit as we will have this annette there&#39;s another text here showing that we have reduced we have increased or restated back the balance and so this analytic checks will be recorded on the debit of the sales ledger contract of course there could be this under text also here which should be recorded on their credit but then because we are paying this cheque we normally assume that we will pay the correct check and if we know that we have made the wrong check payment we don&#39;t have money in our accounts will not pay so in the questions you don&#39;t usually see this under checks for the creditors control account however in case you meet them it&#39;s opposite that will be a discounted check recorded on the credit side but then just be sure that you understand that this this check is relating to debtors or creditors but by default normally it relates to debtors but then if the person is so specific that we also would check to the creditors and it was on it then of course we record that on the credit side of the account all right then we can also talk about bills now bill a bill of exchange can also be accepted for payment and so this bill can either be bills receivable or bills payable now boost receivable comes from the side of the debtor who is giving the bill for payment and bills payable is also coming from the creditor the side of the creditor where we are also going to pay whether we give to the creditor and so when it is accepted by us or the bill&#39;s payable is accepted by the creditors then it means that we assume that it is reducing the balance of each side and so that means that bill&#39;s receivable just like a cheque will be recorded on the credit side of the sales ledger control account so that it will reduce the balance of their debtors account and through bills payable which is also opposite will also appear here so that it will also reduce the creditor&#39;s balance similar similarly the bills also can be disarmed as when bills are receivable and later we find out that they are disadded opposites it&#39;s also real estate that that so we have this earned bills receivable also here and that means that there will be discerning spills payable also on the opposite side and so i&#39;m sure that we are following the way we are trying to get the understanding from the opposite of our sites and then let me talk about bad days now but that may relate only to the debtors because we people owe us and we assume oh is a certain that they may not be and so we write them off as bad mind you that prohibition for bad debts will not appear in their control accounts it&#39;s only the bad debts that are written off that will appear and so bad that will also reduce the debtors balance and so we are going to have bad debts here on the credit side of the letters control account but then we may not have an opposite here because that will violate the prudence concept if you want to agree that this year here there can be a death that is bad then you that you are only the creditor you are intentionally saying you know p that one is not acceptable in accounting and so badly remain here alone and if we are fortunate and those that are recovered when we write them off and later their letters come to peak then we will have to restate them first and so but that recovered will also be on their debit side of their sales leisure control accounts so they will be banned and there can be bad debts recovered so i just want you to get the understanding very very well and then there could be interest as well now there could be interest in a sense that there can be a timeline for payment and some patches and similar agreements have some conditions that if you don&#39;t pay within an agreed period of time they charge you interest on the debts you are owed and so if we have such agreements with the debtor and they don&#39;t pay within the stipulated time we have a right to charge interest and so when interest starts you yourself you have not been able to pay and we have charged you interest in addition so it&#39;s going to further increase your debts so interest on overdue the tax account will also appear on the debit side because it is going to increase their debt so we can have interest on overdue accounts which is also going to be debited similarly we can also have interest charged by the creditor on our value account also being credited to the creditors control account and that is also going to increase the amount we owe okay and then let us also look at a refund let us assume that the debtor has paid you an amount of cash and later i realized that it was not supposed to be paid so you are refunding it back or a creditor you have paid their credit and creditors will refund them so all those who mean there is an opportunity that should be made now when we receive cash or check from the data we credit the debtor&#39;s account and so when we are refunded it should be debited that is just the opposite and so this will be refund to customers or debtors on the debit side and there could also be a refund buy here is to here it is by their creditors to ask so this will be on the credit side to reverse the cash payment that we also have made and so that is equally an opposite treatment that you should take note of then we call something loading charges now no team charges relate only to their purchases like that control account now this is the meaning of noting charges if you are a supplier most of your customers can note ahead of time the order of goods so sometimes when you are going in before you even go in and bring in the stuff people will just come and make a note that when you come leave me 100 don&#39;t sell it make sure you reserve 100 for me make sure you reserve 200 quantities for me those kind of things when they happen sometimes they are charged before just for looting it&#39;s like taking your phone to the repairs when you go to the request for your laptop most of the time the repair or just just for accepting your item into the shop may just charge you um ten cities or ten dollars or whatever just for accepting your item before after they are able to repair they give you the actual appeal and so just that is just about noting chance it&#39;s something that must be done before the real transaction takes place it&#39;s just for loyalty to for accepting that i&#39;m going to deliver this booth to you you will note and so i charge you for that now if the supplier is a supplier that you do continual business with you may not necessarily have to pay every time you make the order but what you do is that once you make the order you credit your account and the supplier will indicate that you owe them an amount and because you have no pay becomes a debt to you the business and so it is going to increase the amount you owe to the supplier and so no team charges will appear on the credit side of the purchases ledger controller can buy it doesn&#39;t come anywhere and there is no opposite for that in the sales ledger control account if we want to include that it will still violate the prudence concept and though we don&#39;t so we don&#39;t do that just like that okay and then we can also look at errors there could be errors made anywhere which could be corrected and for errors corrected it would be on the debit credit of the sales letter or either debits or credits of the purchases ledger control account errors can be errors and so i don&#39;t really want to include errors in my format but then once we have already understood the principle of correcting of errors when errors are made we are told about errors i&#39;m sure we&#39;ll be able to know which place to correct the errors then the last two things i may want to talk about for now even though you may meet other things that i didn&#39;t mention is set off and then the transfers now set off will appear on both sides of the controller above account sorry set off will pay on both accounts now set off is a contract payment it&#39;s like you owe me and i owe you and so let&#39;s cancel it off and so it may not be the same the operator but then what happens is that there could be a debtor owing you an amount and at the same time the person is your creditor and so what happens is that you may just want to set off the amount that you owe so if you are owning me 1 200 and i am owing you 500 so we can just say okay let&#39;s set up the 500 against each other so that your balance that i&#39;m going remains 700. and so when that happens i have to reduce the balance here that you owe me and you also have to reduce the balance here that i will buy the 500 that is mutual and that is what we call a setup and so what we are going to do is that set off because it is reducing both balance should appear on the credit side of the sales ledger control account and at the same time will appear on the debit side of the purchases ledger control account now when you are solving the question you are going to see just one figure for setup but when you are treating it it should be treated twice this week because it is going to reduce both balances so that the final balance will stand in the books that is how we treat the setup and then transfers this is why i want you to pay attention very well now transfer means that you are taking a balance from one place to another place it could be any balance that you are transferring now we can transfer a sales ledger balance to the purchases ledger and we can also transfer a can be pestici by transferring a debit balance in the sales ledger to the uh sales letter sorry and we can also transfer a credit balance the same applies here so what happens is that you should be careful and look at which balance we are transferring and that will guide you onto the right entries to be made if we are told that we are transferring a defect balance in the purchases like that to the sales letter then what happens is that we are going to remove that damage balance from the petitions letter and make that debt balance appear on the debits of the sales letter if we are transferring a credit balance from the sales ledger for example it means that because it&#39;s a creditless letter sorry because it is a credit balance that we are transferring we should remove it and it should appear on the credit side of a business ledger if you are transferring a debit it should appear in the debit if you are transferring a credit you should appear the credits of whichever account you have transferred and by the double entry every debit center should have a corresponding credit center so it means that if the balance is on the credit side of the sales ledger control account and you are transferring it to the purchase ledger contract account then of course you have to first of all write it at the end side so that it will offset this balance and cancel it all from this account and then because you have debited it the corresponding view appear on the credits of the purchases like that control account and that is how it&#39;s supposed to be done and so mind you if the question says that sales let that debit balance transfer to purchases like that sales letter debit because it was a sales letter damage then we start recording from the credits so that to upset it we are not seeing the debit it&#39;s imaginary but once they are saying it is a job balance being transferred start recording it from their credits if they are saying it is a credit balance being transferred start recording from the debit that is what we do and so if we are told that a sales ledger credit balance of 500 for example is transferred to the purchases like that because it is a credit balance i&#39;ll first of all come to the debit c transfer two purchases like that transferred to an output 500 but we were told it was a credit balance but then our recording faced on the debit cards he transferred to purchase this lender then the corresponding entry will come to the credit of the petitions ledger control account and i will see transfer from serious ledger 500 this is how transfer is supposed to be done so no matter which side that you are told just make sure that you first record at the opposite side and then bring the corresponding entry to the other side and so i may not add the transfers to the format but when you are giving transfers to me this is how you&#39;re going about it if it&#39;s a credit balance you debit expectancy transfer to purchase this ledger and then you bring it and say transfer from the sales ledger so that is how we are going to look at the transfers also and so what i mean is that there is no specific place nobody should tell you that transfers will always appear here or there no transfers are done with the understanding of the double entry principle and that is what we do we run it out to people and that is basically what the transfers are about then i&#39;ll end with balancing off control accounts if you want to balance off a control account normally what confuses students is that we are giving the closing balances some some of them are one of them and so because when we&#39;re starting we have two balance records for each of them there could be a double balance carried down and so what the question will do is that most of the time they will give you one of the close imbalances and then you will find the other one of them if they don&#39;t give you then obviously you are just going to have just one balance and so they will give one and normally they give the ones that are abnormal the balances that are not the normal balances we know that sales ledger has a debit balance and so when they are finalizing the immediate issue of the credit balance of sales ledger at the end so that you will find your own debit balance that is what we do and so if they tell you that sales ledger closing balance at the end credit balance sorry inclusive balance of sales letter credits at the end is let&#39;s say 1 000. we know that sales ledger has a debit balance and so if it is a credit balance then you do that first before you find your normal debit balance but i want you to understand something when we say a balance on the account we have the balance carried down we have the balance brought down which one represents the balance of the account is it the balance but not the balance carry down obviously is the balance brought down the balance brought down is where we see it has a balance not the carry down and we cannot get the balance brought down without getting the balance carried down first as you if we are told that sales ledger credits balance at the end now when we are beginning and we we are told that sales like that credit balance we take it to the credit side sales leisure debit balance we take it to the debit side but when we are ending and we are told sales letter credits balance credit balance means balance brought down not balance can be done so if they are ending anything credit balance you shouldn&#39;t put the balance carry down on their credit the balance carry down should be at the debit side so that broad time will eventually appear on their credits because credit balance that they are referring to is not that carried down but they brought down if you make a mistake and say because they said it is a closing credit balance i&#39;m going to put the balance carry down on the credit then eventually your balance goes down will be on the debit that will make it a debt balance and so when we are beginning the account and we are told credit balance we put it on their credit debit balance we are picking things for the debit but when we are ending and we are told credit balance we first put it on the debits as carried down before eventually it appears on the credits as when we say sales letter credit balance that amount will be a debit card down here so that after closing of the account we will have the same amount of these 500 who appeared here as balance brought down 500. so this means that this account this is a credit balance but then because we hadn&#39;t closed the account by the time we were preparing we have to first put it as a carry down on the debits and so mind you that the ending is not at the same at the beginning for the ending when you are told the balance put it first at the opposite side as a carry down before you bring it down and then when you find your difference you&#39;ll find the other side for the blood by carry down otherwise you may end up putting a carry down some way and then you end up getting another carry down and so we conclude by saying that there could be a balance carried down at both sides but remember that one of them will be given to you in the question and then there will be a balance brought down at both sides as well the same applies to the creditors control accounts so ladies and gentlemen this is the format for the control account in our next video we are going to look at a question we will pick a question and try and understand some of these things if you didn&#39;t really get some of my explanations well don&#39;t worry in our next video i will try and use a practical question to make you understand it better and i&#39;m sure you have benefited from this video remember to 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Transcript for:Control Accounts Lecture

Transcript for:
Control Accounts Lecture