Control Accounts and Incomplete Records
This domain covers two linked skills: using control accounts to prove the sales and purchases ledgers, and reconstructing accounts from incomplete records using a statement of affairs, cash summaries, mark-up and margin. Questions ask you to complete a control account, find missing figures, or calculate profit where no complete double entry exists.
Sales ledger control account
Debit side: opening debit balances, credit sales, dishonoured cheques, interest charged to customers. Credit side: returns inwards, receipts from debtors, discount allowed, bad debts written off, contra or set-off against the purchases ledger, and closing debit balances.
Purchases ledger control account
Credit side: opening credit balances, credit purchases. Debit side: returns outwards, payments to creditors, discount received, contra, and closing credit balances.
Control accounts prove the personal ledgers, locate errors, help deter fraud and give a quick total of debtors or creditors. Contra entries appear on opposite sides of the two control accounts and cancel out.
Incomplete records
Reconstruct the figures. A statement of affairs gives capital = total assets − total liabilities at a date. Profit = closing capital + drawings − additional capital introduced − opening capital. Use a cash or bank summary to find missing receipts and payments, and mark-up or margin to convert cost of sales into sales.
Mark-up = gross profit ÷ cost of sales. Margin = gross profit ÷ sales. If cost of sales is 600,000 and mark-up is 25%, sales = 750,000; a 25% margin would instead give 600,000 ÷ 0.75 = 800,000.
Worked example
Opening capital 400,000; closing capital 520,000; drawings 90,000; additional capital introduced 30,000. Profit = 520,000 + 90,000 − 30,000 − 400,000 = 180,000. Reasoning: drawings reduce capital, so they are added back; new capital increases capital without being profit, so it is deducted.
Traps
- Using a margin where a mark-up is given, or the reverse.
- Forgetting drawings or new capital in the profit calculation.
- Treating a loan as part of capital in the statement of affairs.
- Omitting contra entries from the control account.
- Ignoring opening balances when computing the closing balance.