CHAPTER 7 - CONTROL ACCOUNTS Flashcards
Give 4 points about Control Accounts
Summarise the balances of sales and purchase ledger accounts and the cashbook
The total value of the respective control accounts should equal the individual balances on the sales and purchases ledger accounts
Kept in the nominal ledger
Total balance of each control account transferred to Trail Balance and recorded in the Balance Sheet as Debtors, Creditors, Bank and Cash
Names 5 advantages of producing control accounts
Checks arithmetical accuracy
Early identification of errors
Single entries on trial balance - saves time
Prevents fraud - different person checks control account
Indicates what is owed to and from
Are cash sales / purchases recorded in the Sales and Purchase ledger control accounts?
No as they don’t appear in the sales or purchases ledger
What is in the sales ledger control account (or debtor control account?)
Opening Debtors balance
Credit sales (invoices) - incl VAT
Sales returns (credit notes) - incl VAT
Receipts from Debtors (to settle invoices)
Discount allowed
Closing Debtors balance
What are the rules for credits and debits on the sales and purchase ledger control account?
Sales ledger
Debits increase the amount owed (new invoices)
Credits reduce the amount owed (credit notes, payments, discounts)
Purchase ledger
the opposite
What is in the purchase ledger control account (or creditors control account)?
Opening creditors balance
Credit purchases
Purchase returns
Payments to creditors
Discounts received
Closing creditors balance
How do we record a Bad Debt write off?
Credit the debtor account
Credit added to sales ledger control account
Debt Bad Debts
What is a contra and how is it recorded?
Where 2 companies trade in both directions wth each other and agree to net off amounts owed and owing to
Lowest amount set off against highest so always the lowest amount that is transferred from one account to the other
Taking the corresponding debtor and creditor accounts for the company:
- Take the lowest amount and add an opposite entry on the same account
- Then add the opposite entry on the corresponding debtor or creditor account
- Then transfer the contra amounts to the 2 control accounts as Purchase or Sales Ledger Set Off (contra)
eg. If lowest amount (£200) is on the PL as a credit, add a debit entry of £200 (called Sales Ledger set off). Then add a credit entry on the SL account for £200 (called Purchase Ledger set off). And transfer entries to control accounts
How are discounts allowed and received recorded on the control account?
Follow same principal as per debtor and creditor accounts
Discounts Allowed are credited to SL control account
(they reduce the amount owed by the debtor)
Discounts Received are debited to the PL control account
(they reduce the amount owed to the creditor)
How are dishonoured cheques recorded?
They restore the amount owed by the debtor so are debited to the debotr account and SL control account
(as ‘Dishonoured Cheques’)
