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Cambridge IGCSE Accounting · 0452
Chapter 3: Verification of Accounting Records — Part 4
Section 3.4 · Control Accounts
Purpose of Control Accounts
As a business grows and ledger accounts increase, errors become harder to find. A Control Account acts as a summary “Trial Balance” for a specific ledger.
- Sales Ledger Control Account (SLCA): Summarises all trade receivables (debtors).
- Purchases Ledger Control Account (PLCA): Summarises all trade payables (creditors).
Advantages:
- Locates errors in the subsidiary ledgers quickly.
- Provides a total for trade receivables/payables for the financial statements.
- Acts as a check on the accuracy of ledger clerks and helps prevent fraud.
The Golden Rule: Sources of Information
Control accounts are never prepared by adding up individual accounts in the Sales or Purchases ledgers. Instead, they use totals from the Books of Prime Entry.
| Entry in Control Account | Source of Information |
|---|---|
| Credit Sales | Sales Day Book |
| Credit Purchases | Purchases Day Book |
| Returns Inwards | Returns Inwards Day Book |
| Returns Outwards | Returns Outwards Day Book |
| Cheques/Cash Received or Paid | Cash Book (Bank/Cash columns) |
| Discounts Allowed/Received | Cash Book (Discount columns) |
| Irrecoverable Debts | General Journal |
Examiner Report Insights
- Terminology: Use “Irrecoverable Debts” instead of “Bad Debts” in all entries.
Key Entries and Formats
Sales Ledger Control Account (Asset-type)
- Debit side: Opening balances, Credit Sales, Dishonoured cheques, Interest charged on overdue accounts.
- Credit side: Bank/Cash received, Discounts allowed, Returns inwards, Irrecoverable debts, Contra entries.
Purchases Ledger Control Account (Liability-type)
- Debit side: Bank/Cash paid, Discounts received, Returns outwards, Contra entries.
- Credit side: Opening balances, Credit Purchases, Interest charged by suppliers.
Special Items
- Contra Entry (Set-off)
- Occurs when a business is both a customer and a supplier to the same firm. The balances are set off against each other to avoid exchanging cheques.
Journal: Dr Trade Payable, Cr Trade Receivable (same amount).
In SLCA: credit side. In PLCA: debit side. - Dishonoured Cheque
- A customer’s cheque that the bank refuses to pay. Previously recorded as cash received from debtor; now reversed.
Effect on SLCA: Debit side (increases amount owed by debtors again). - Interest Charged on Overdue Accounts
- SLCA: Debit side (debtor owes more). PLCA: Credit side (business owes supplier more).
- Irregular (Minority) Balances
- Sometimes an account carries a balance on the “wrong” side (e.g., a debtor has a credit balance due to overpayment). These are shown as separate opening/closing balances within the same control account.
Worked Example 1: Sales Ledger Control Account
Information for the month:
- Opening debit balances (debtors): $12,400; opening credit balances (debtors overpaid): $200
- Credit sales (Sales Day Book): $28,600
- Returns inwards: $1,100
- Cheques and cash received: $22,800; Discounts allowed: $480
- Irrecoverable debts written off: $650
- Contra with supplier T. Lane: $300
- Dishonoured cheque: $420
- Interest charged to debtors: $85
Sales Ledger Control Account
| Details | $ | Details | $ |
|---|---|---|---|
| Balance b/d (debit) | 12,400 | Balance b/d (credit) | 200 |
| Sales Day Book | 28,600 | Cash Book (receipts) | 22,800 |
| Dishonoured cheque | 420 | Discount allowed | 480 |
| Interest charged | 85 | Returns inwards | 1,100 |
| Irrecoverable debts | 650 | ||
| Contra | 300 | ||
| Balance c/d (credit) | 200 | Balance c/d (debit) | 16,175 |
| 41,705 | 41,705 |
Net trade receivables for the Statement of Financial Position: $16,175 − $200 = $15,975.
Worked Example 2: Purchases Ledger Control Account
Information for the month:
- Opening credit balances (creditors): $8,900; opening debit balances (creditors overpaid): $120
- Credit purchases (Purchases Day Book): $19,400
- Returns outwards: $760
- Cheques paid: $16,200; Discounts received: $340
- Contra with customer T. Lane: $300
- Interest charged by supplier: $55
Purchases Ledger Control Account
| Details | $ | Details | $ |
|---|---|---|---|
| Balance b/d (debit) | 120 | Balance b/d (credit) | 8,900 |
| Cash Book (payments) | 16,200 | Purchases Day Book | 19,400 |
| Discount received | 340 | Interest charged | 55 |
| Returns outwards | 760 | ||
| Contra | 300 | ||
| Balance c/d (debit) | 10,635 | ||
| 28,355 | 28,355 |
Net trade payables: $10,635 − $120 = $10,515 (debit minority balance reduces total creditors).
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