Control Accounts Reconciliation

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 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 c/f X Balance b/f X X X Balance b/f X

Payables ledger control account Balance b/f X 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 X Balance c/f X Balance b/f X 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 fully- paidfor 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 Adjustments for errors X X X X Adjustments for errors Revised balance c/f –– –– 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 Alston's payables ledger control account is an integral part of the double entry system. Individual ledger account balances are listed and totalled on a monthly basis, and reconciled to the control account balance. Information for the month of March is as follows: (1)Individual ledger account balances at 31 March have been listed out and totalled 19,766. (2)The payables ledger control account balance at 31 March is 21,832. (3)On further examination the following errors are discovered: The total of discount received for the month, amounting to 1,715, has not been entered in the control account but has been entered in the individual ledger accounts. On listing-out, an individual credit balance of 205 has been incorrectly treated as a debit. A petty cash payment to a supplier amounting to 63 has been correctly treated in the control account, but no entry has been made in the supplier's individual ledger account. The purchases day book total for March has been undercast (understated) by 2,000. Contras (set-offs) with the receivables ledger, amounting in total to 2,004, have been correctly treated in the individual ledger accounts but no entry has been made in the control account.