Sales ledger control account does not agree to the list of balances
Bexley Wholesale extracts its sales ledger control account at 31 March 20X5 and finds a debit balance of £28,470, while the total of the list of customers' balances is £27,930. Investigation reveals the following: a credit note of £128 sent to a customer was entered in the customer's account but not in the control account; discount allowed of £96 was posted to the control account twice; a contra with the purchase ledger of £640 has not been entered in the control account; a customer's balance of £215 was left out of the list; a bad debt of £190 was written off in the control account but not in the customer's account; and a sales invoice of £157 was entered twice in one customer's account. The managing director wants to write the £540 difference off to the income statement and move on.
1. Identify which items correct the control account and which correct the ledger accounts or the list, and calculate the corrected totals.
Read the worked answer
Control account errors (the control account is wrong, the ledgers are right):
- Credit note £128 not entered in the control account - the control account has not been credited, so the balance is £128 too high.
- Discount allowed £96 posted twice - the control account has been credited £96 too much, so the balance is £96 too low.
- Contra £640 not entered - the control account should have been credited £640, so the balance is £640 too high.
Control account: 28,470 − 128 + 96 − 640 = £27,798
List and ledger errors (the control account is right):
- Balance of £215 omitted from the list - the list is £215 too low.
- Bad debt £190 written off in the control account but not in the customer's account - the list still includes a debt that no longer exists, so the list is £190 too high.
- Invoice £157 entered twice in the customer's account - that account is £157 too high, so the list is £157 too high.
List: 27,930 + 215 − 190 − 157 = £27,798
Both now agree at £27,798.
2. Prepare the reconciliation statement showing how the control account balance and the list total reach the same figure.
Read the worked answer
| Sales ledger control account | £ |
|---|---|
| Balance per control account | 28,470 |
| Less credit note not entered | (128) |
| Add discount allowed posted twice | 96 |
| Less contra not entered | (640) |
| Corrected balance | 27,798 |
| List of balances | £ |
|---|---|
| Total per list | 27,930 |
| Add balance omitted from the list | 215 |
| Less bad debt not posted to customer | (190) |
| Less invoice entered twice | (157) |
| Corrected total | 27,798 |
There is no residual difference, which confirms every discrepancy has been explained. A control account reconciliation should always end in a nil unexplained difference; any remainder indicates an error that has not yet been found.
3. Explain why writing the £540 off is unacceptable and state the receivables figure that should appear in the statement of financial position.
Read the worked answer
Writing off £540 would create an expense for a loss that does not exist and would understate receivables and profit. A write-off is only appropriate where a debt is genuinely irrecoverable. Here the £540 is entirely explained by identifiable bookkeeping errors, each of which has a specific correction. Writing it off would also leave the underlying errors uncorrected, so the same difference would reappear next month.
Receivables in the statement of financial position should be £27,798, less any allowance for doubtful debts, with the same figure in the sales ledger control account and in the list of balances.
Two further points:
- The £190 must still be posted to the customer's account even though it is already in the control account, otherwise the ledger still shows a debt that has been written off and the customer may be chased in error.
- The nominal ledger also needs the other side of these corrections; correcting the control account is only half of each double entry.