Chapter 17 - Control Accounts

CHAPTER 17 Control accounts

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Internal check Control accounts Control account reconciliations

Internal check What is it?  Also known as internal controls, ensure that transactions to be recorded and processed have been authorised, that they are all included and that they are correctly recorded and

Types of internal check  A trial balance  Bank reconciliations  Control account reconciliations  Segregation of duties  Authorisation

Control accounts 

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A control account is an account in the nominal ledger in which a record is kept of the total value of a number of similar but individual items. Control accounts are used chiefly for receivables and payables

Question A payables control account contains the following entries. Bank 79,500 Credit purchases 83,200 Discounts received 3,750 Contra with receivables control account 4,000 Balance c/f at 31 December 20X8 12,920 There are no other entries in the account. What was the opening balance brought forward at 1 January 20X8?

Reasons for having control accounts 

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Check accuracy of entries made in the personal accounts Assist in the location of errors Internal check where there is separation of bookkeeping duties A balance can be extracted quickly for producing a trial balance or statement of financial position

Control account reconciliations The balance on the receivables control is $15,091. List of receivables ledger balances totals $15,320. The following errors are discovered. (a) A receivable paid $10 in cash. This has been correctly recorded in the receivables ledger, but no entries in the control account. (b) One of the receivables had a credit balance of $60. However this has been included as a debit balance (c) Returns inwards of $35 have been recorded in the receivables ledger, but not in the receivables control account. (d) One page of the sales day book has been undercast by $100. (e) When a sales invoice for $95 was entered in the receivables ledger, the figures were transposed and shown as $59.

Solution

Question The total of the balances in a company's receivables ledger is $800 more than the debit balance on its receivables control account. Which one of the following errors could by itself account for the discrepancy? A The sales day book has been undercast by $800 B Settlement discounts totalling $800 have been omitted from the nominal ledger C One receivables ledger account with a credit balance of $800 has been treated as a debit balance D The cash receipts book has been undercast

Quiz 1 What is a control account? 2 What does the balance on the payables control account represent? 3 A dishonoured cheque is a credit entry in the receivables control account. True or false? 4 How might a credit balance arise in the receivables control account? 5 Why might the balance on the receivables control account not agree with the total of the individual customers' balances? 6 When may a control account act as an internal check?

Answer 1 A record is kept of the total value of a number of similar but individual items. 2 The total amount owed by the business to its suppliers. 3 False 4 A customer may return goods or overpay his balance. 5 (i) A transposition error (ii) The day book could be miscast. (iii) A transaction may be omitted from the control account or the memorandum account. (iv) The total may be incorrectly extracted. 6 Where there is separation of bookkeeping

QB 34 You are given the following information: Trade receivables at 1 January 20X3 Trade receivables at 31 December 20X3 Total receipts during 20X3 (including cash sales of $5,000) Sales on credit during 20X3 amount to: A $81,000 B $86,000 C $79,000 D $84,000 Answer: C

QB 36 The receivables ledger control account at 1 May had balances of $32,750 debit and $1,275 credit. During May, sales of $125,000 were made on credit. Revenues from trade receivables amounted to $122,500 and cash discounts of $550 were allowed. Refunds of $1,300 were made to customers. The closing balances at 31 May could be A $35,175 debit and $3,000 credit B $35,675 debit and $2,500 credit C $36,725 debit and $2,000 credit D $36,725 debit and $1,000 credit Answer: C

QB 37 The debit side of a trial balance totals $50 more than the credit side. This could be due to A A purchase of goods for $50 being omitted from the supplier's account B A sale of goods for $50 being omitted from the customer's account C An invoice of $25 for electricity being credited to the electricity account D A receipt for $50 from a receivable being omitted from the cash book Answer: A

QB 38 The receivables ledger control account had a closing balance of $8,500. It contained a contra to the payables ledger of $400, but that had been entered on the wrong side of the control account. The correct balance on the control account should be A $7,700 debit B $8,100 debit C $8,400 debit D $8,900 debit

QB 39 Your payables ledger control account has a balance at 1 October 20X8 of $34,500 credit. During October, credit purchases were $78,400, cash purchases were $2,400 and payments made to suppliers, excluding cash purchases, and after deducting cash discounts of $1,200, were $68,900. Purchase returns were $4,700. The closing balance was: A $38,100 B $40,500 C $47,500 D $49,900 Answer: A