Control Accounts
Overview
A business may owe, and be owed, money by hundreds of different people. Checking every single customer and supplier account by hand whenever the books go wrong would take days. A control account solves this by summarising a whole ledger in one place: the sales ledger control account mirrors every credit customer, and the purchases ledger control account mirrors every credit supplier. Its closing balance should equal the total of all the individual accounts it controls, so it acts as a fast, independent check on the arithmetic.
In this lesson you will learn what control accounts are for, where their figures come from, and how to draw up both the sales ledger and the purchases ledger control account including the trickier items: cash discounts, returns, irrecoverable debts, dishonoured cheques, interest on overdue accounts, contra entries and refunds. You will also see why the figures must come from the books of prime entry, and how digital recording is changing the role of these accounts.
Objectives
- the purposes of purchases ledger and sales ledger control accounts.
- the books of prime entry as sources of information for the control account entries.
- how to prepare purchases ledger and sales ledger control accounts to include credit purchases and sales, receipts and payments, cash discounts, returns, irrecoverable debts, dishonoured cheques, interest on overdue accounts, contra entries, refunds, opening and closing balances (debit and credit within each account).
- the impact of digital recording of business transactions on the preparation and use of control accounts.
Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on Control Accounts. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- A sales ledger control account summarises the accounts of: A. Credit suppliers B. Credit customers C. Expenses D. Cash sales Answer: B
- From where must the figures for a control account be taken? A. The individual ledger accounts being checked B. The trial balance C. The books of prime entry D. The bank statement Answer: C
- In a sales ledger control account, a dishonoured cheque is entered on the: A. Credit side B. Debit side C. Both sides D. It is not entered Answer: B
- A contra entry between the two control accounts is: A. Debited in both B. Credited in both C. Credited in the sales ledger CA and debited in the purchases ledger CA D. Debited in the sales ledger CA and credited in the purchases ledger CA Answer: C
- A sales ledger control account has: opening balance $2 000 debit, credit sales $5 000, receipts $4 500, sales returns $300. The closing balance owed by customers is: A. $2 200 B. $2 800 C. $11 800 D. $7 800 Answer: A
Available on the Green Bridge App
Download the Green Bridge CBT app on your phone or computer to access full lesson notes, practice questions, and more.
Available on the Green Bridge App
Download the Green Bridge CBT app on your phone or computer to access full lesson notes, practice questions, and more.
Recommended Books
Practice Mock Questions
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