Control accounts

• A sales ledger control account summarises all customers’ accounts; a purchases ledger control account summarises all suppliers’ accounts.
• Purposes: check the arithmetical accuracy of each ledger, locate errors, give a quick total of trade receivables and payables, and help prevent fraud.
• Entries come from the totals in the books of prime entry.
• Prepare both control accounts, including contra entries, dishonoured cheques, interest, irrecoverable debts, refunds, and debit and credit balances in each.

One account that checks hundreds

A business may have hundreds of customers. A control account records the totals of everything posted to that ledger. If the ledger is correct, the control account balance equals the total of the individual balances.

• Accuracy: it checks the arithmetical accuracy of the sales ledger or purchases ledger.
• Locating errors: if the trial balance does not agree, the control accounts show which ledger to check.
• Information: the total of trade receivables or trade payables is available quickly, for the trial balance and statement of financial position.
• Fraud: it is prepared by someone other than the ledger clerk, so fraud is harder to hide.

For 7707 the control accounts are memorandum accounts outside the double entry, and you are not asked to reconcile them with the ledger balances.

Every entry comes from a book of prime entry

A contra entry arises when a business both buys from and sells to the same firm, and the two balances are set off against each other. A dishonoured cheque is one the customer’s bank refused to pay, so the customer owes the money again. A credit balance in the sales ledger arises when a customer has overpaid or returned goods after paying.

Both opening balances, both closing balances

Worked example: sales ledger control account