14 - Control accounts

Question 1

what are the two main control accounts

Answer 1

sales ledger control account = shows amount owed by credit customers

purchase ledger control account = shows amount owed to credit suppliers

Question 2

how are total credit sales for a period recorded in the nominal ledger

Answer 2

DEBIT - sales ledger control account
CREDIT - sales tax control account
CREDIT - sales

Question 3

how are total credit sales returns for a period recorded in the nominal ledger

Answer 3

DEBIT - sales returns
DEBIT - sales tax control account
CREDIT - sales ledger control account

Question 4

how are total purchases for a period recorded in the nominal ledger

Answer 4

DEBIT - purchases
DEBIT - sales tax control account
CREDIT - purchase ledger control account

Question 5

how are total purchases returns for a period recorded in the nominal ledger

Answer 5

DEBIT - purchase ledger control account
CREDIT - sales tax control account
CREDIT - purchases returns

Question 6

how do discounts change the sale recorded

Answer 6

when a settlement discount offered, decision needs to be made whether they will take or refuse the discount.

entries recorded depends on judgement made

Question 7

what happens if the discount is allowed

Answer 7

if they believe customer will take advantage, sale will be recorded in the nominal ledger net of the settlement discount

Question 8

what happens if the discount is not expected to be taken

Answer 8

if they don’t believe it will be taken, they should recognise the sale at the amount before the settlement discount

Question 9

how are unexpected discounts recorded

Answer 9

a settlement discount unexpectedly taken will show in a separate discounts allowed column using the entry

DEBIT - sales
CREDIT - sales ledger control account

do the opposite to reverse effects of full amount

a discount allowed is only shown in books of prime entry where customer takes advantage of discount unexpectedly. double entry posted to sales account and not a discounts allowed account

Question 10

how are discounts received recorded

Answer 10

settlement discounts received differs from settlement discounts allowed

purchaser initially records full cost, not considering whether or not they are going to take the settlement discount

Question 11

what do control accounts show

Answer 11

contain summarised totals of all the individual transactions affecting their respective ledgers

contain same info as in sales and purchases accounts but show totals, not individual transactions

Question 12

what are control accounts used for

Answer 12

trade receivables (credit customers), trade payables (credit suppliers) and sales tax

Question 13

difference between sales and purchase ledger accounts

Answer 13

SALES LEDGER CONTROL ACCOUNT = account in which records are kept of transactions involving all credit customers in total

PURCHASE LEDGER CONTROL ACCOUNT = account in which records are kept of transactions involving all credit suppliers in total

Question 14

what does the control account system enable/what does it mean

Answer 14

• less room for error in nominal ledger double entry system as transactions kept to a minimum
• easy to identify from nominal ledger what business owes/is owed
• nominal/subsidiary ledgers checked by reconciling balance on control account = prompts business to identify and deal with discrepancies quickly
• fraud is at reduced risk as segregation of duties is promoted (one person controlling sales/ledger another maintaining control accounts)

Question 15

what are the components of a sales ledger control account

Answer 15

BALANCE B/D = on left, credit customers owe money to business so it is an asset
BALANCE C/D = balancing figure to make both sides equal, on right
CREDIT SALES = increase amount owed by credit customers, debit entry to control account = increase in asset
BANK = on right, credit customers pay amount owed so decrease in sales ledger control account
SALES RETURNS = decrease asset as they return items originally bought so don’t owe money, on right

Question 16

what are the components of a purchase ledger control account

Answer 16

BALANCE B/D = on right, business owes money to credit supplier so balance b/d is liability
BALANCE C/D = balancing figure so sides balance, on left
CREDIT PURCHASES = increase liability as business owes suppliers for items bought on credit
BANK = credit suppliers paid amount owed so decrease in purchase ledger control account liability, on left
PURCHASES RETURNS = purchases decrease liability as business has returned items bought so doesn’t owe money, on left
DISCOUNTS RECEIVED = if amount owed to credit suppliers settled through a discount, reduces purchase ledger control account liability, on left

Question 17

what is the purpose of subsidiary ledger accounts

Answer 17

so the business can see amount owed from credit customers or to credit suppliers at a given time

Question 18

what is the structure of the subsidiary ledger accounts

Answer 18

sales ledger contains separate accounts for each credit supplier

separate accounts list all transactions (invoices, credit notes, payments etc) relating to individual credit customers/suppliers

if all inputs are correct in nominal ledger, total of the list of balances always equals balance on respective control account

Question 19

why are reconciliations needed

Answer 19

regular reconciliations between the control account and the ledger helps to ensure that the records are accurate so discrepancies can quickly be identified and corrected

Question 20

what are reasons for differences between the control account and the subsidiary ledgers

Answer 20

• only recording an item in the control account or ledger
• over or underestimating an item in control account or ledger
• duplicating an item in the control account or ledger
• posting an item to the wrong side of the control account or ledger

Question 21

what is a contra entry

Answer 21

when a business has a customer who also supplies the business with goods

Question 22

how is a contra entry recorded

Answer 22

DEBIT - purchase ledger control account
CREDIT - sales ledger control account

this will reduce both the sales ledger control account balance and the purchase ledger control account balance