UNIT 7:CONTROL ACCOUNTS
Key unit competence: To be able to prepare control accounts
Introductory activity
While preparing a trial balance after drawing up UMULISA’s lists of debtors’
and creditors’ balances at the end of the period, it was challenging to
have the debtors’ and creditors’ balance carried down to be included in a
trial balance as they are drawn from several personal ledger accounts. It
was further noticed that some errors were committed due to UMULISA’s
insufficient skills in bookkeeping. Required: (i) Which approach UMULISA
can use to ensure that the information provided don’t contain errors that
could be very difficult to find (ii) As someone with accounting skills, advise
her on what to do in order to find out the appropriate balances to berecorded in a trial balance.
7.1 Meaning and purpose of control account
Activity 7.1
Sales day book and purchases day books are totaled periodically (often a
month). The individual entries in day books will have been entered one by
one in the appropriate personal accounts contained in the receivables and
payables ledgers. As these personal accounts are not part of the double
entry system, their appropriate balance or total of day books are posted to
other accounts to check the accuracy of entries made in the debtors and
creditors personal accounts.
1. How do we call those accounts in which these balances are posted?
2. What is the purpose of preparing those accounts?
7.1.1. Meaning of Control Account
Control account is a summary account appearing in the general ledger for the
purpose of controlling all the detailed entries in the ledger to which it relates. It
is a total account inserted in a ledger to make itself balancing. Control accounts
are also referred to as total accounts because it is only totals from day books or
other subsidiary books of account which are posted to them.
The balance in a control account should be the same as the total of the
individual balances extracted from the related subsidiary ledger giving proof of
the arithmetical accuracy of the book-keeping entries in the ledger.
Control accounts in the general ledger represent the total of all the accounts
in some other ledgers. The accuracy of these ledgers is proved by the control
accounts and they are also called as self-balancing ledger or adjustment
accounts. Control accounts are used chiefly for receivables and payables.
7.1.2. Purpose of control accounts
Check the accuracy of entries made in the personal accounts
They provide a check on the accuracy of entries made in the personal accounts
in the receivables ledger and payables ledger. It is very easy to make a mistake
in posting entries, because there might be hundreds of entries to make. Figures
might get transposed. Some entries might be omitted altogether, so that an
invoice or a payment transaction does not appear in a personal account as it
should.
a) Compare the total balance on the receivables control account with the
total of individual balances on the personal accounts in the receivables
ledger.
b) Compare the total balance on the payables control account with the
total of individual balances on the personal accounts in the payables
ledger.
It is possible to identify the fact that errors have been made.
Assist in the location of errors
Where postings to the control accounts are made daily or weekly, or even
monthly, the control accounts could also assist in the location of errors. If
errors are made in the ledger, the control A/C will not reconcile with individual
balances extracted from the subsidiary ledgers. When a control account does
not reconcile with the sum of individual balances extracted from the subsidiaryledger, it may be an indication that some errors were made.
Detection of fraud
Since all entries pass through the control A/C, it is very easy to detect fraud
committed by manipulation of accounts in the ledger. Control accounts are
normally under the charge of senior or responsible officials who have the
responsibility of controlling fraud. If a control account balance is different from
the sum of individuals’ accounts, then either fraud or mistakes were committed.
Control accounts strengthen an organization’s internal control by detecting and
checking fraud and also location and therefore correction of errors.
Internal check where there is separation of bookkeeping duties
Where there is a separation of clerical (bookkeeping) duties, the control account
provides an internal check. The person posting entries to the control accounts
will act as a check on a different person whose job is to post entries to the
receivables and payables ledger accounts.
A balance can be extracted quickly for producing a trial balance or
statement of financial position
To provide receivables and payables’ balances more quickly for producing a
trial balance or statement of financial position, a single balance on a control
account is obviously extracted more simply and quickly than many individual
balances in the receivables or payables ledger. This means also that the number
of accounts in the double entry bookkeeping system can be kept down to a
manageable size, since the personal accounts are memorandum accounts only
and the control accounts instead provide the accounts required for a double
entry system.
Note that while this may be an arrangement, control accounts are the accounts
that serve the role of memorandum account
Enhancing management efficiency
Control accounts enhance management efficiency because creditors’ and
debtors’ balances can be obtained at first glance on a duly balanced-off (closed)
control accounts. The speed at which these figures are obtained is faster. This
saves time wasted in balancing-off and adding up all individual debtors’ or
creditors’ balances.
Determination of credit sales and credit purchases
In single entry and incomplete records and in Receipts and Payments accounts,
the credit sales and credit purchases are often missing. These figures can bedetermined by constructing control accounts
Application activity 7.1
Referring to the activities of previous lessons:
i) What is a control account?
ii) Why is it necessary to have control accounts in a businessorganization? Justify your answer.
7.2 Sales Ledger control account/ Debtors’ control account
Activity 7.2
Below are the total balances from total lists of individual debtors accountsin the books of MURENZI Enterprises operating in Muhanga District:
7.2.1 Meaning of Sales ledger control account / Debtors’ control account
Debtors control account reflects the total amount owed by all individual debtors.
The balance of the debtors control account must be equal to the total of debtors
list, which represents the amounts owed by the individual debtors obtained
from the individual balances in the various subsidiary ledger accounts for each
debtor. This subsidiary ledger is known as the debtor’s ledger.
The debtors’ control account or accounts receivable control account balance
should reconcile with the sum of all individual debtors’ balances extractedfrom debtor’s subsidiary ledgers also known as the sales ledger.
7.2.2 Information for debtors’ control account
Required: Prepare a debtors’ control account.
Answer
ILLUSTRATION 2
The following details were extracted from the books of ABC Ltd Company forthe year ended 31st/12/2016
Application activity 7.2
1. A business maintains a receivables ledger control account. A debt of
FRW 1,500,000 is to be written off. Which of the following entries
is correct (ignore VAT)?
a) Debit: Personal account of the customer, credit irrecoverable
debts expense, FRW 1,500,000
b) Debit: irrecoverable debts expense, credit: receivables ledger
control, FRW 1,500,000
c) Debit: receivables ledger control, credit: irrecoverable debts
expense, FRW 1,500,000
d) Debit: irrecoverable debts expense, credit: personal account of
the customer, FRW 1,500,000
2. The following information was extracted from the books of Mugishaand Co. Ltd for the month of June 2020
7.3 Creditor’s control account/ purchases ledger control
account
Activity 7.3
7.3.1.Meaning of Creditor’s control account/ purchases ledger control account
Creditors’ control account reflects the total amount owed to all the individual
creditors. The balance of the creditors control account must equal the total of
the creditors list, which represents the amounts owed by the individual creditors
obtained from the individual balances in the various subsidiary ledger accounts
for each creditor. This subsidiary ledger is known as the creditors’ ledger.
The creditors control account balance should reconcile with the sum of all
creditors’ balances extracted from the creditors subsidiary ledger (purchases
ledger). In this way, a creditors’ control account is like a trial balance for thesubsidiary ledger to which it relates.
7.3.2 Information for creditors’ control account
Required: Prepare creditors’ control account.
Answer
debtor A/C, then the balance on the creditors A/C cannot be noted off
and it must therefore remain in the debtors’ ledger as the credit balance
(contra). This scenario can also happen in the creditor’s A/C. Hence, it
is also common in control A/Cs to find a creditor’s A/C has a small debit
balance and a bigger credit balance.
2. When writing up control accounts imagine you are writing up the personal
accounts but in totals. It means items debited in a personal account will
be debited in the control account also and vice versa. It is clear that the
final balance of the control accounts for particular sales and purchases
should agree with the total of the balances in the individual accounts in
the ledger.
3. Control accounts are prepared on monthly basis. Control a/c balances
are shown in the trial balance on the assumption that all entries in the
debtors’ and creditors’ ledger are correct and later transferred to the
balance sheet either as current Assets (Debtors) and current liabilities
for (creditors).
4. Credit balance in the debtor’s ledger and debit balance in the Creditor’s
ledger: sometimes, a debtor’s account might have a credit balance and a
Creditors a/c a debit balance. Such a situation would arise due to more
cash received from debtors or paid to creditors. Any credit balances
on accounts in the debtors’ ledger will be shown as credit balance on
debtors control account. Any debit balances on accounts in the creditor’sledger will be shown as a debit balance on the creditors control a/c.
Application activity 7.3
The following information was extracted from the books of CYUSALtd for the month of January 2021
Prepare a sales ledger control account
7.4 Control account reconciliation
Activity 7.4
UWAMAHORO is a sole trader operating her business in Rubavu District
buying and selling fish. When preparing the debtors’ and creditors’ control
accounts at the end of a month, their balances failed to agree with the total
debtors’ and creditors personal individual accounts due to lack of sufficient
accounting skills.
1. What may be the causes of disagreement between control account
and personal ledger accounts?
2. Advise UWAMAHORO on what to do in order to get the same
balance in debtor’ and creditors’ personal ledger accounts with
control accounts
Activity 7.4
7.4.1 Importance of sales account/purchases account control
reconciliation
A control account, as earlier explained, acts as a trial balance or a check to correct
double entries in the ledger. It follows therefore that the balance carried down
on a control account must equal the total of list of balances in the concerned
ledger account. For instance, the balance carried down in the creditors’ or
debtors’ control account. Where a difference occurs, it is an indication of an
error. If the error is located, an attempt is made to reconcile both balances by
correcting the double entries as required.
ILLUSTRATION 3
An accountant prepared a debtors control account. The balance on the account
was FRW 27,000,000 on 31/12/2019. The list of balances from individual
debtors’ ledger accounts amounted to FRW19,600,000 on 31/12/2019.
The following errors were located:
a) Cash of FRW 540,000 received from debtors was correctly entered in
the cash book but entered as FRW 1,540,000 in the control account.
b) Sales returns of FRW 600,000 were entered on the wrong side of the
debtors control account.
c) A cheque of FRW 500,000 received from a debtor was dishonored.
This was entered only in the sales ledger and not in the control account.
d) Bad debts amounting to FRW 2,000,000 were written off in the sales
ledger but no entry was made in the control account.
e) A sale of goods to James for FRW 1,500,000 on credit was omitted
from the control account
f) On a certain day, the sales day book’s total was FRW 20, 800,000 but
was posted to control account as FRW 28,000,000.
Required: Make corrections to the control accounts so that the adjustedcontrol account balance reconciles with the list of individual debtors’ balances
Note: the control account should have shown a balance of FRW 19,600,000 on
31/12/2019 which reconciles with the total of individual debtors’ balances on
the same day. The closing balance of FRW 27,000,000 in the control accountis wrong.
ILLUSTRATION 4
MAHORO operates control accounts in the nominal ledger. On June 30 2004,
the following amounts were obtained from his ledger.
Debtors control accounts balance (debit) FRW 960,000
Creditors control account balance (credit) FRW 375,000
A list of balances from debtors and creditors on 30 September 2004 were as
follows:
Total debtor’s balances FRW 829,000
Total creditors balances FRW 320,000
The following errors were later discovered:
1) The sales day book had been overcast by FRW 115,000 and purchases
day book under cast by FRW 63,000.
2) Returns inwards totaling FRW 33,000 for the month of September had
not been posted to the control account.
3) A credit balance in the purchases ledger of FRW 25,000 had been
omitted from the list of balances.
4) An amount of FRW 28,000 in the purchases ledger has been set off
against a contra account in the sales ledger but this is not recorded in
either of the control accounts.
5) A sum of FRW 13,000 being discount received was correctly entered
in the cash book but was over casted by FRW 64,500 in the respective
personal account.
6) A dishonored cheque of a customer for FRW 45,000 had not been
entered in the control accounts.
Required:
i) Entries in the debtors control account and creditors control account.
ii) A corrected statement showing the total of the debtors and creditorsbalances
Solution
Skills Lab
The following figures were extracted from the books of MUTESI Ltd for themonth of June 2017
Required: From the above information, prepare the Debtors Ledger and
Creditors ledger control accounts
End of unit assessment
1. Define a control account
2. Which of the following items will appear as an item posted to the
payables ledger?
a) Irrecoverable debts written off
b) Returns inwards of the period
c) Trade discounts received in total in the period
d) Settlement discounts received in total in a period
3. The following entries appeared in the receivables ledger control
account for June. Balance b/f 1 June FRW 7,500,000, sales FRW
20,000,000, receipts from customers FRW 8,000,000, irrecoverable
debts written off FRW 900,000. What was the balance at 30 June?
a) FRW 3,600,000
a) FRW 19,500,000
b) FRW 20,400,000
c) FRW 18,600,000
4. The trial balance of MULIHANO, a trader taken out on 30th
September, 2019 failed to agree. To help locate the error, he
prepared sales and purchases control accounts from the followinginformation:
