Control Accounts Reconciliation Control accounts are general ledger

Control Accounts Reconciliation

Control accounts • are general ledger accounts that summarize a large number of transactions. As such they are part of the double entry system. • They are used to prove the accuracy of the ledger accounting system. • They are mainly used with regard to receivables and payables balances.

Accounting entries for credit sales and purchases • When a company transfers the daily total of the sales book into the general ledger the double entry is: Dr Receivables ledger control account Cr Sales revenue.

• When they transfer the total of the purchase day book the double entry is: Dr Purchases Cr Payables ledger control account

Receivables ledger control account Balance b/f X Credit sales (SDB) X Sales returns (SRDB) X Bank (CB) X Bank (CB) dishonoured cheques X Irrecoverable debts (journal) X Bank (CB) refunds of credit balances X Discounts allowed X Interest charged X Contra X Balance c/f X Balance b/f ____ X X ____ X Balance b/f X

Payables ledger control account Balance b/f X Bank (CB) X Credit purchases (PDB) X Purchases returns (PRDB) X Bank (CB) refunds of debit balances X Discounts received X Contra X Balance c/f Balance b/f X ____ X Balance b/f X

Contra entries • The situation may arise where a customer is also a supplier. Instead of both owing each other money, it may be agreed that the balances are cancelled. • The double entry for this type of contra is: Dr Payables ledger control account Cr Receivables ledger control account • The individual receivable and payable memorandum accounts must also be updated to reflect this.

Credit/debit balances in the wrong account • Sometimes the receivables ledger control account may show a credit balance, i. e. we owe the customer money. These amounts are usually small and arise when: • The customer has overpaid. • Credit notes have been issued for fullypaid-for goods. • Payment is received in advance of raising invoices. • The payables ledger control account may show a debit balance for similar reasons.

Memorandum accounts • While maintaining control accounts most businesses will maintain what is referred to as a 'memorandum. ' • This is a separate list of individual receivable and payable amounts due from each customer and to each supplier, respectively. • This simple 'list of balances' is used as a record so that companies know how much each customer is due to pay and how much they are due to pay each supplier. • This assists with credit control and cash flow management.

Control account reconciliation • A key control operated by a business is to compare the total balance on the control account at the end of the accounting period with the total of all the separate memorandum balances. • In theory they should be identical. This is referred to as a control account reconciliation.

Control account reconciliation Receivables ledger control account $ $ Balance given by the examiner X Adjustments for errors X Revised balance c/f X –– –– X X Reconciliation of individual receivables balances with control account balance $ Balance as extracted from list of receivables Adjustments for errors X X/(X) ––––– Revised total agreeing with balance c/f on control account X

Control account reconciliation