Control account

Let’s revisit the two main controls accounts: the sales ledger control account and the purchase ledger control account. After a quick recap we will look at how each control accounts give assurances to people looking at the financial statements.

Sales ledger control account recap

Within the general ledger, the total amount outstanding from receivables is shown in the sales ledger control account (the sales ledger control account may also be referred to as the receivables ledger control account).

The following are posted to this account:

• the totals of credit sales (from the sales day book)
• returns from customers (from the sales returns day book)
• cash received (from the analysed cash book)
• discounts allowed (from the discounts allowed daybook).

This account therefore shows the total receivables outstanding.

It does not give details about individual customers’ balances. As we have seen, this is available in the sales ledger for receivables.

Read the PDF in the Downloads to see what the sales ledger control account looks like now.

Purchase ledger control account recap

• the total of credit purchases (from the purchases day book)
• returns to suppliers (from the purchases returns day book)
• total payments to payables (from the cash payments book)
• discounts received taken (from the discounts received daybook).

Read the PDF in the Downloads to see what the purchase ledger control account looks like now.

How do these control accounts give assurances?

Sales ledger control account

The source documents giving rise to the entries in the both the day books and the individual ledgers are the same. Therefore, we should be able to compare:

• the total receivables balance per the sales ledger control account

with:

• a list of totals of customer receivables balances, derived from the individual ledgers.

These should always agree!

Comparing the sales ledger control account balance with the total of the sales ledger accounts is a form of internal control.

This comparison is called a control account reconciliation. The reconciliation should be performed on a regular basis by the sales ledger clerk, then reviewed and approved by an independent person.

If the total of the balances on the sales ledger do not equal the balance on the sales ledger control account then an error or errors have been made in the general ledger and/or sales ledger, and these must be investigated and corrected.

Purchase ledger control account

The information that is being posted to the purchases ledger control account in total and to the individual accounts in the purchases ledger as individual entries are from the same sources and should in total be the same figures.

Therefore, just as with the sales ledger control account, if the double entry and entries to the purchases ledger have been correctly carried out then:

• the balance on the purchases ledger control account

should be equal to:

• the total of the list of balances on the individual suppliers’ accounts in the purchases ledger.

In a similar way to the sales ledger control account, a reconciliation is also carried out for the purchase ledger control account.

These reconciliations help to ensure:

• the business is maintaining good quality, complete records
• it gives assurance that the figures that appear in the financial statements are accurate
• users of the financial statements have more confidence in their preparation.

Next step

There are a couple of other entries which tend to appear in control accounts, namely irrecoverable or bad debts and contra entries. These are missing from the proformas you see in the Downloads. We will come onto these next week.

When we move onto the next step, we can see what the reconciliation looks like. See you there!