Control accounts
There are two main types:
- Sales Ledger Control Account (SLCA): Summarizes all transactions with trade receivables (debtors). It represents the total amount owed to the business by customers.
- Purchases Ledger Control Account (PLCA): Summarizes all transactions with trade payables (creditors). It represents the total amount owed by the business to suppliers.
Building on the concept of double-entry bookkeeping, control accounts are part of the general ledger, not the subsidiary ledgers. They provide a single figure for trade receivables or trade payables that can be immediately extracted for the Statement of Financial Position.
Why use them?
- Error Detection: If the balance on the control account does not match the sum of the individual balances in the subsidiary ledger, an error exists.
- Fraud Prevention: Separating the recording of totals (control account) from individual customer/supplier accounts makes it harder for one person to conceal theft.
- Efficiency: The Statement of Financial Position can be prepared quickly using the control account balance without listing every individual debtor or creditor.
| Book of Prime Entry | Transactions Recorded | Source for Control Account |
|---|---|---|
| Sales Day Book | Total credit sales | Debit side of SLCA |
| Purchases Day Book | Total credit purchases | Credit side of PLCA |
| Returns Inwards Day Book | Total goods returned by debtors | Credit side of SLCA |
| Returns Outwards Day Book | Total goods returned to creditors | Debit side of PLCA |
| Discount Allowed Day Book | Total discounts given to debtors | Credit side of SLCA |
| Discount Received Day Book | Total discounts received from creditors | Debit side of PLCA |
| Cash/Bank Book | Receipts and payments | Bank column posted to respective sides |
The totals from these books are posted to the control accounts at the end of the period. This process verifies that the subsidiary ledgers have been arithmetically correct.
The SLCA is an asset account. Therefore, it normally has a debit balance.
| Side | Item | Reason |
|---|---|---|
| Debit | Opening Balance b/d | Amount owed by debtors at start |
| Debit | Sales (from Sales Day Book) | Increases amount owed by debtors |
| Debit | Interest on overdue accounts | Increases amount owed by debtors |
| Debit | Dishonoured cheques | Reinstates the debt (customer still owes) |
| Debit | Irrecoverable debts written back | Reinstates a previously written-off debt |
| Credit | Returns Inwards | Decreases amount owed by debtors |
| Credit | Discount Allowed | Decreases amount owed by debtors |
| Credit | Bank (Receipts) | Decreases amount owed by debtors |
| Credit | Contra entries | Offsets amount owed against amount payable |
| Credit | Irrecoverable debts written off | Removes the debt from the ledger |
| Credit | Balance c/d | Closing balance (amount still owed) |
Note: The closing debit balance is brought down as a debit balance at the start of the next period.
The PLCA is a liability account. Therefore, it normally has a credit balance.
| Side | Item | Reason |
|---|---|---|
| Debit | Returns Outwards | Decreases amount owed to creditors |
| Debit | Discount Received | Decreases amount owed to creditors |
| Debit | Bank (Payments) | Decreases amount owed to creditors |
| Debit | Contra entries | Offsets amount payable against amount receivable |
| Debit | Balance c/d | Closing balance (amount still owed) |
| Credit | Opening Balance b/d | Amount owed to creditors at start |
| Credit | Purchases (from Purchases Day Book) | Increases amount owed to creditors |
| Credit | Interest on overdue accounts | Increases amount owed to creditors (liability increases with credit) |
| Credit | Refunds due to business | Increases amount owed to creditors (supplier owes us, so our liability to them effectively reduces? No: If supplier refunds us, they owe us money. In PLCA, we debit the account to reduce liability. Wait. Let's clarify.
Correction on Refunds: If a supplier gives a refund, it is usually credited to the Purchases Ledger Control Account if it is not yet paid, effectively reducing the amount we owe them? No.
Let's look at the logic: PLCA is what WE owe THEM.
If they refund us, they owe US money. This is an asset (receivable from supplier). However, in exam contexts, unpaid refunds are often treated as a reduction in the payable balance until paid.
Actually, standard treatment: A refund owed to the business by a supplier reduces the amount the business owes the supplier. Therefore, it is posted to the Debit side of the PLCA.
Re-evaluating Refunds based on Cambridge conventions:
If the question states 'Refund due from supplier', it is treated as a reduction in the payable.
Entry: Debit PLCA, Credit Purchases/Inventory.
So, Refunds appear on the Debit side of the PLCA.
Let's re-verify the previous error note. The prompt said 'refunds are treated as reductions in the control account balance (Credit for SLCA, Debit for PLCA)'.
Yes.
SLCA: Customer owes us. Refund to customer reduces their debt. Credit SLCA.
PLCA: We owe supplier. Refund from supplier reduces our debt. Debit PLCA.
| Side | Item | Reason |
|---|---|---|
| Debit | Balance c/d | Closing balance (amount still owed) |
| Credit | Opening Balance b/d | Amount owed to creditors at start |
| Credit | Purchases (from Purchases Day Book) | Increases amount owed to creditors |
| Credit | Interest on overdue accounts | Increases amount owed to creditors (liability increases with credit) |
| Credit | Contra entries | Offsets amount payable against amount receivable |
Wait, Contra is complex.
If we have a balance in SLCA (they owe us) and PLCA (we owe them), we can offset.
Contra entry: Debit PLCA, Credit SLCA.
This reduces the liability in PLCA and the asset in SLCA.
Let's stick to the standard list for PLCA:
| Side | Item | Reason |
|---|---|---|
| Debit | Returns Outwards | Decreases amount owed to creditors |
| Debit | Discount Received | Decreases amount owed to creditors |
| Debit | Bank (Payments) | Decreases amount owed to creditors |
| Debit | Contra entries | Offsets amount payable against amount receivable |
| Debit | Refunds due from suppliers | Decreases amount owed to creditors |
| Debit | Balance c/d | Closing balance (amount still owed) |
| Credit | Opening Balance b/d | Amount owed to creditors at start |
| Credit | Purchases (from Purchases Day Book) | Increases amount owed to creditors |
| Credit | Interest on overdue accounts | Increases amount owed to creditors (liability increases with credit) |
| Credit | Balance b/d | Opening balance for next period |
Note: The closing credit balance is brought down as a credit balance at the start of the next period.
- Jan 1 Balance b/d: 14,940</li> <li>Jan 3 Sales (from Sales Day Book):12,736
- Jan 31 Returns Inwards: 920</li> <li>Jan 31 Cash received from debtors:11,305
- Jan 31 Irrecoverable debts written off: 140</li> <li>Jan 31 Contra entry (offset against PLCA):180
Solution:
| Date | Details | </th> <th style="text-align:left">Date</th> <th style="text-align:left">Details</th> <th style="text-align:left"> | |||
|---|---|---|---|---|---|
| Jan 1 | Balance b/d | 14,940 | Jan 31 | Returns Inwards | 920 |
| Jan 31 | Sales | 12,736 | Jan 31 | Cash/Bank | 11,305 |
| Jan 31 | Irrecoverable debts | 140 | |||
| Jan 31 | Contra | 180 | |||
| Feb 1 | Balance c/d | 15,131 | |||
| Total | 27,676 | Total | 27,676 |
Calculation of Closing Balance:
Debits: 14,940 + 12,736 = 27,676
Credits (excluding balance): 920 + 11,305 + 140 + 180 = 12,545
Balance c/d: 27,676 - 12,545 = 15,131
1. Misplacement of Discounts
- Error: Posting Discount Allowed to the Debit side of SLCA or Discount Received to the Credit side of PLCA.
- Correction: Discount Allowed reduces the amount owed by debtors, so it must be credited to the SLCA. Discount Received reduces the amount owed to creditors, so it must be debited to the PLCA.
2. Interest on Overdue Accounts
- Error: Treating interest as a reduction in the balance (e.g., debiting SLCA).
- Correction: Interest charged to debtors increases the amount they owe. It must be debited to the SLCA. Similarly, interest charged by suppliers increases our liability and is credited to the PLCA.
3. Contra Entries
- Error: Including contra entries in both the debit and credit sides of the same control account, or omitting them entirely.
- Correction: A contra entry reduces both the receivable and payable balances simultaneously. It is posted to the Credit side of SLCA and the Debit side of PLCA. It does not appear in the bank column.
4. Irrecoverable Debts
- Error: Confusing 'written off' with 'written back'.
- Correction:
- Written Off: The debt is removed permanently. Debit Irrecoverable Debts Expense, Credit SLCA.
- Written Back: A previously written-off debt is now being paid or reinstated. Debit SLCA, Credit Irrecoverable Debts Recovery Income.
5. Refunds
- Error: Treating a refund owed to the business by a supplier as an increase in payable (Credit PLCA).
- Correction: A refund from a supplier reduces the amount we owe them. It is posted to the Debit side of the PLCA.
When asked to prepare a control account, always use the specific account names accepted by the markscheme. For example, use 'Bank' or 'Cash' for receipts/payments, not descriptive phrases like 'bank transfers received'. Use 'Sales' for credit sales, not 'Revenue'. Using vague descriptions may result in lost marks because they do not clearly identify the double-entry source.
Tip 2: Handling Contra Entries
When calculating the balance of a control account, ensure you include contra entries on the correct side. A common error is omitting them or posting them to the wrong side. Remember: Contra reduces the balance of the account being controlled. For SLCA (asset), it is a Credit entry. For PLCA (liability), it is a Debit entry. This directly addresses the definition of contra as an offsetting transaction.
Tip 3: Digital Recording Context
While digital software automates these entries, Cambridge exams require you to understand the manual logic of posting from books of prime entry to control accounts to verify arithmetical accuracy and locate errors. You must be able to prepare them manually. Examiners test your ability to identify which total from which book goes to which side, ensuring you understand the underlying double-entry principles rather than just relying on software output.
- Assist in locating errors (by comparing control account balance with subsidiary ledger totals). 2. Provide a proof of the arithmetical accuracy of the ledgers they control.
Opening Balance (Credit): 8,450<br>Purchases (Credit):7,325
Returns Outwards (Debit): 463<br>Discount Received (Debit):210
Bank Payments (Debit): 6,675<br>Interest on Overdue Accounts (Credit):166
Total Debits (excluding balance): 463 + 210 + 6,675 = 7,348
Balance c/d (Credit): 15,941 - 7,348 = 8,593