Control Accounts
This domain tests preparation of the receivables ledger control account and payables ledger control account, and reconciliation of their balances with the individual ledger listing. Exam questions often provide opening balances, credit sales or purchases, receipts or payments, returns, discounts and bad debts.
Core rules
- The receivables control account summarises total transactions with credit customers.
- Debit side: opening balance, credit sales, dishonoured cheques, interest charged, refunds to customers.
- Credit side: cash received, discounts allowed, sales returns, bad debts written off, contra with payables, closing balance.
- The payables control account is the mirror image for credit suppliers.
- The control account balance should agree with the total of the individual ledger balances; differences indicate errors or omissions.
- Cash sales do not pass through the receivables control account.
Worked example
Opening receivables 10,000; credit sales 50,000; receipts 42,000; sales returns 1,000; bad debts 500. Closing receivables = 10,000 + 50,000 - 42,000 - 1,000 - 500 = 16,500. The debit side totals 60,000; the credit side totals 43,500 plus closing 16,500 = 60,000. If the ledger listing totals 16,200, investigate a 300 difference rather than forcing the control account to agree.
Traps
- Including cash sales in the receivables control account.
- Entering purchase returns in the receivables control account.
- Forgetting contra entries between receivables and payables.
- Adjusting the control account simply to match an incorrect listing.