Control accounts and bank reconciliation
Control accounts
The sales ledger control account summarises all debtors; the purchase ledger control account summarises all creditors. Debits in the debtors control are opening balance, credit sales, interest charged, dishonoured cheques and bad debts recovered. Credits are cash received, discount allowed, returns inwards, bad debts written off, contra set-off and the closing balance. The control balance must equal the total of the individual ledger balances.
Bank reconciliation
The cash book (bank columns) and the bank statement record the same money at different times. Timing differences are unpresented cheques and lodgements not yet credited. Items appearing only on the statement - bank charges, interest, standing orders, direct debits, credit transfers and dishonoured cheques - must first be written into the cash book to give the adjusted cash book balance. That balance is then reconciled to the statement.
Traps
- Do not enter unpresented cheques in the cash book; they are already recorded there.
- A debit balance in the cash book is a favourable bank balance, shown as a credit balance on the statement.
- Reverse the signs when dealing with an overdraft.
- Credit balances inside the debtors control are customers who have overpaid; they are current liabilities.
- A contra set-off between debtors and creditors appears in both control accounts.
Worked example
Statement shows a credit balance of P1,200, with unpresented cheques of P300 and lodgements not yet credited of P500. Cash book balance = 1,200 + 300 − 500 = P1,000. Adjust the cash book first for any statement-only items.