Vu Accounting Lesson 26
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Financial Accounting - I – MGT101
VU Lesson # 26
CONTROL ACCOUNTS (Continued) A number of books are opened in connection with control accounts to reduce the volume of general ledger. These books are called ‘Subsidiary Books’. It is important to note that only credit sales/purchases become part of control accounts. Cash sales/purchases are not included in the control accounts. Subsidiary Books for Sales/Debtors Three subsidiary books are maintained in case of sales / debtors. • Sales Journal / Sales Day Book – individual invoice wise sales are recorded in this Journal. This book serves as source for all the recording of Credit sales. • Sales Return / Return Inward Journal if volume of returns is also high then, these are also recorded in a separate register. • Debtors Ledger – this ledger maintains record of individual debtor. The information flows to the debtors control account in the general ledger as follows: Opening balance of debtors
List of debtors balances drawn up to the end of previous period. This also confirms with the aggregate balance of the debtors ledger. Credit Sales Individual credit sale is recorded in the sales journal. Periodical total of this journal is posted into the debtors control account. Sales Return In case, the transaction volume of sales return is high, then these are recorded in the sales return journal. The total is posted in the debtors control account periodically. Cheques / Cash Received List of receipts is extracted from cash and bank book. Or a separate column is maintained in cash and bank books for this purpose. Closing Balance This is the balancing figure. It can also be checked with the total of balances in debtors’ ledger.
Example # 1: Let’s suppose that the sales journal provides the following record for the month of March, 2002: Sales Journal Date
Invoice #
Name / Debtor
Amount
Mar 01, 2002
01
A
10,000
Mar 15, 2002
02
B
15,000
Mar 31, 2002
03
C
20,000
Total © Copyright Virtual University of Pakistan
45,000 187
Financial Accounting - I – MGT101 The above mentioned record will be posted in the personal ledger accounts of A, B & C (Debtors ledger account) in the following manner: Date 01/03
A’s Account Particulars Code Amount # Rs. (Dr.) 10,000 Total
Date 15/03
10,000 B’s Account Particulars Code Amount # Rs. (Dr.) 15,000
Total
Date 31/03
Account code---Date Particulars
Balance b/d Total Account code---Date Particulars
15,000
C’s Account Particulars Code Amount # Rs. (Dr.) 20,000
10,000 10,000 Code Amount # Rs. (Cr.)
15,000
Total
15,000
Account code---Date Particulars
20,000
Code Amount # Rs. (Cr.)
Balance b/d
Balance b/d Total
VU
Code Amount # Rs. (Cr.) 20,000
Total
20,000
In the general ledger, the amount of total sales will be booked in the following manner: Date
Sales Account Particulars Code Amount # Rs. (Dr.)
Account code---Date Particulars 31/03
Balance b/d
Total
Total sales for the month of march, 2002
Code Amount # Rs. (Cr.) 45,000
45,000
45,000
Total
© Copyright Virtual University of Pakistan
45,000 188
Financial Accounting - I – MGT101 Date 31/03
VU
Debtors Control Account Particulars Code Amount # Rs. (Dr.) Total sales for 45,000 the month of march, 2002
Total
Account code---Particulars
Date
45,000
Code Amount # Rs. (Cr.)
Balance b/d
45,000
Total
45,000
Now if we total the balance of three accounts of the debtors’ ledger on Mar 31, 2002: A B C Total
10,000 15,000 20,000 45,000
It will be the same as the balance in the debtors control account of the general ledger. Recording of Sales Return Let’s say that sales return journal for the month of March, 2002 give the following record: Sales Journal Date
Name / Debtor
Amount
Jan 15, 20--
A
1,000
Jan 20, 20--
B
2,000
Jan 25, 20--
C
3,000
Total
6,000
The above mentioned record will be posted in the personal ledger accounts of A, B & C (Debtors ledger account) in the following manner: Date 01/03
A’s Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) 10,000 15/03
Balance b/d Total
10,000
Total
© Copyright Virtual University of Pakistan
Code Amount # Rs. (Cr.) 1,000
9,000 10,000 189
Financial Accounting - I – MGT101 Date 15/03
B’s Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) 15,000 20/03
Total Date 31/03
VU
15,000
Balance b/d
13,000
Total
15,000
C’s Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) 20,000 25/03
Total
20,000
Code Amount # Rs. (Cr.) 2,000
Code Amount # Rs. (Cr.) 3,000
Balance b/d
17,000
Total
20,000
In the general ledger, the amount of total sales return will be booked in the following manner: Date
Sales Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) Total sales 6,000 31/03 Total sales for return for the the month of month of march, 2002 march, 2002 Balance b/d Total
39,000 45,000
Total
© Copyright Virtual University of Pakistan
Code Amount # Rs. (Cr.) 45,000
45,000
190
Financial Accounting - I – MGT101 Debtors Control Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 31/03 Total sales for 45,000 Total sales return the month of for the month of march, 2002 march, 2002
Total
45,000
VU Code Amount # Rs. (Cr.) 6,000
Balance b/d
39,000
Total
45,000
Again if we total the balance of three accounts of the debtors’ ledger on Mar 31, 2002: A 9,000 B 13,000 C 17,000 Total 39,000 It will be the same as the balance in the debtors control account of the general ledger. Receipts from Debtors Here, we need a total figure of receipts from debtors. Therefore, when control accounts are used, we maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank books are not used. On the receipts side of the cash and bank book, a column is added in which receipts from debtors are separately noted. This type of cash / bank book is also called multi column cash / bank book. A sample of the receipt side of cash / bank book is given hereunder: Cash / Bank Book Receipt Side Date No
Narration / Particulars
Ledger Code
Receipt Receipt from Amount Debtors 10,000 500
Received from A
5,000
5,000
300 Received from B
2,500
2,500
Received from A
1,000
1,000
Received from C
1,500
1,500
950 1,000 Total
22,750
© Copyright Virtual University of Pakistan
9,000 191
Financial Accounting - I – MGT101
VU
Subsidiary Books for Purchases/Creditors Recording of creditors is similar to debtors. The subsidiary books maintained in case of purchases / creditors are: • Purchase Journal / Purchase Day Book – individual purchases are recorded in this Journal. • Purchase Return / Return outward Journal – If the volume of returns is also high, then these are also recorded in a separate register. • Creditors Ledger – this ledger maintains record of individual creditors. The information flows to the creditor control account in the general ledger as follows: Opening balance of List of creditor balances drawn up to the end of previous creditors period. This also confirms with the aggregate balance of the creditors ledger. Credit Purchases Individual credit purchase is recorded in the purchase journal. Total of this journal is posted into the creditors control account periodically. Purchase Return In case the transaction volume of purchase return is high, then, these are recorded in the purchase return journal. Periodically, the total is posted in the creditors control a/c. Cheques / Cash List of payments is extracted from cash and bank book. Or a Paid separate column is maintained in cash and bank books for this purpose. Closing Balance This is the balancing figure. It can also be checked with the total of balances in creditors’ ledger. Example # 2: Let’s consider the following data for the month of March, 2002: Purchase Journal Date
Name / Debtor
Amount
Mar 01, 2002
X
5,000
Mar 10, 2002
Y
10,000
Mar 25, 2002
Z
15,000
Total
30,000
The above mentioned record will be posted in the personal ledger accounts of X, Y & Z (Creditors ledger account) in the following manner:
© Copyright Virtual University of Pakistan
192
Financial Accounting - I – MGT101 X’s Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 01/03
Date
Date
Balance b/d
5,000
Total
5,000
Particulars
Y’s Account Account code---Code Amount Date Particulars # Rs. (Dr.) 10/03
Balance b/d
10,000
Total
10,000
Particulars
Total
Total
Z’s Account Account code---Code Amount Date Particulars # Rs. (Dr.) 25/03
Balance b/d
15,000
Total
15,000
VU Code Amount # Rs. (Cr.) 5,000
5,000 Code Amount # Rs. (Cr.) 10,000
10,000 Code Amount # Rs. (Cr.) 15,000
Total
15,000
In the general ledger, the amount of total purchases will be booked in the following manner:
© Copyright Virtual University of Pakistan
193
Financial Accounting - I – MGT101 Purchases Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 31/03 Total 30,000 purchases for the month of march, 2002
Total Date 31/03
30,000
30,000
Total
30,000
Code Amount # Rs. (Cr.)
Balance b/d
30,000
Total
30,000
Creditors Control Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) Total purchases for the month of march, 2002 Balance b/d
VU
Code Amount # Rs. (Cr.) 30,000
Total
30,000
Now, if we total the balance of three accounts of the creditor’s ledger on Mar 31, 2002: X 5,000 Y 10,000 Z 15,000 Total 30,000 It will be the same as the balance in the creditors control account of the general ledger. Recording of Purchase Return Let’s say that the purchase return journal show the following picture for the month of March, 2002: Purchase Return Journal Date Name / Debtor Amount Mar 01, 2002 X 500 Mar 10, 2002 Y 1,000 Mar 25, 2002 Z 1,500 Total 3,000 The above mentioned record will be posted in the personal ledger accounts of X, Y & Z (Creditors ledger account) in the following manner: © Copyright Virtual University of Pakistan
194
Financial Accounting - I – MGT101 X’s Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 01/03 500 01/03
Balance b/d Total Date
Particulars
10/03 Balance b/d Total Date
Particulars
25/03
4,500 5,000
Total
Y’s Account Account code---Code Amount Date Particulars # Rs. (Dr.) 1,000 10/03 9,000 10,000 Total Z’s Account Account code---Code Amount Date Particulars # Rs. (Dr.) 1,500 25/03
Balance b/d
13,500
Total
15,000
VU Code Amount # Rs. (Cr.) 5,000
5,000 Code Amount # Rs. (Cr.) 10,000
10,000 Code Amount # Rs. (Cr.) 15,000
Total
15,000
In the general ledger, the amount of total purchases will be booked in the following manner: Date 31/03
Purchases Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) Total 30,000 31/03 Total purchases purchases for return for the the month of month of march, march, 2002 2002
Total
30,000
Code Amount # Rs. (Cr.) 3,000
Balance b/d
27,000
Total
30,000
© Copyright Virtual University of Pakistan
195
Financial Accounting - I – MGT101 Creditors Control Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 31/03 Total 3,000 31/03 Total purchases purchases for the month of return for the march, 2002 month of march, 2002 27,000 Balance b/d
VU Code Amount # Rs. (Cr.) 30,000
Total 30,000 Total 30,000 Now, if we total the balance of three accounts of the creditor’s ledger on Mar 31, 2002: X 4,500 Y 9,000 Z 13,500 Total 27,000 It will be the same as the balance in the creditors control account of the general ledger. Payment to Creditors Here, we need a total figure of payment to creditors. Therefore, when control accounts are used, we maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank books are not used. On the payment side of the cash and bank book, a column is added in which payments to creditors are separately noted. This type of cash / bank book is also called multi column cash / bank book. A sample of the payment side of cash / bank book is given hereunder: Cash / Bank Book Payment Side Date
No Narration / Particulars
Ledger Payment Payment to Code Amount Creditors 500 5,000
Received from A
2,500
2,500
3,000 Received from B
1,500
1,500
1,000 Received from C
1,500
1,500
1,950 1,500 Total
18,450
© Copyright Virtual University of Pakistan
5,500
196
VU Lesson # 26
CONTROL ACCOUNTS (Continued) A number of books are opened in connection with control accounts to reduce the volume of general ledger. These books are called ‘Subsidiary Books’. It is important to note that only credit sales/purchases become part of control accounts. Cash sales/purchases are not included in the control accounts. Subsidiary Books for Sales/Debtors Three subsidiary books are maintained in case of sales / debtors. • Sales Journal / Sales Day Book – individual invoice wise sales are recorded in this Journal. This book serves as source for all the recording of Credit sales. • Sales Return / Return Inward Journal if volume of returns is also high then, these are also recorded in a separate register. • Debtors Ledger – this ledger maintains record of individual debtor. The information flows to the debtors control account in the general ledger as follows: Opening balance of debtors
List of debtors balances drawn up to the end of previous period. This also confirms with the aggregate balance of the debtors ledger. Credit Sales Individual credit sale is recorded in the sales journal. Periodical total of this journal is posted into the debtors control account. Sales Return In case, the transaction volume of sales return is high, then these are recorded in the sales return journal. The total is posted in the debtors control account periodically. Cheques / Cash Received List of receipts is extracted from cash and bank book. Or a separate column is maintained in cash and bank books for this purpose. Closing Balance This is the balancing figure. It can also be checked with the total of balances in debtors’ ledger.
Example # 1: Let’s suppose that the sales journal provides the following record for the month of March, 2002: Sales Journal Date
Invoice #
Name / Debtor
Amount
Mar 01, 2002
01
A
10,000
Mar 15, 2002
02
B
15,000
Mar 31, 2002
03
C
20,000
Total © Copyright Virtual University of Pakistan
45,000 187
Financial Accounting - I – MGT101 The above mentioned record will be posted in the personal ledger accounts of A, B & C (Debtors ledger account) in the following manner: Date 01/03
A’s Account Particulars Code Amount # Rs. (Dr.) 10,000 Total
Date 15/03
10,000 B’s Account Particulars Code Amount # Rs. (Dr.) 15,000
Total
Date 31/03
Account code---Date Particulars
Balance b/d Total Account code---Date Particulars
15,000
C’s Account Particulars Code Amount # Rs. (Dr.) 20,000
10,000 10,000 Code Amount # Rs. (Cr.)
15,000
Total
15,000
Account code---Date Particulars
20,000
Code Amount # Rs. (Cr.)
Balance b/d
Balance b/d Total
VU
Code Amount # Rs. (Cr.) 20,000
Total
20,000
In the general ledger, the amount of total sales will be booked in the following manner: Date
Sales Account Particulars Code Amount # Rs. (Dr.)
Account code---Date Particulars 31/03
Balance b/d
Total
Total sales for the month of march, 2002
Code Amount # Rs. (Cr.) 45,000
45,000
45,000
Total
© Copyright Virtual University of Pakistan
45,000 188
Financial Accounting - I – MGT101 Date 31/03
VU
Debtors Control Account Particulars Code Amount # Rs. (Dr.) Total sales for 45,000 the month of march, 2002
Total
Account code---Particulars
Date
45,000
Code Amount # Rs. (Cr.)
Balance b/d
45,000
Total
45,000
Now if we total the balance of three accounts of the debtors’ ledger on Mar 31, 2002: A B C Total
10,000 15,000 20,000 45,000
It will be the same as the balance in the debtors control account of the general ledger. Recording of Sales Return Let’s say that sales return journal for the month of March, 2002 give the following record: Sales Journal Date
Name / Debtor
Amount
Jan 15, 20--
A
1,000
Jan 20, 20--
B
2,000
Jan 25, 20--
C
3,000
Total
6,000
The above mentioned record will be posted in the personal ledger accounts of A, B & C (Debtors ledger account) in the following manner: Date 01/03
A’s Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) 10,000 15/03
Balance b/d Total
10,000
Total
© Copyright Virtual University of Pakistan
Code Amount # Rs. (Cr.) 1,000
9,000 10,000 189
Financial Accounting - I – MGT101 Date 15/03
B’s Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) 15,000 20/03
Total Date 31/03
VU
15,000
Balance b/d
13,000
Total
15,000
C’s Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) 20,000 25/03
Total
20,000
Code Amount # Rs. (Cr.) 2,000
Code Amount # Rs. (Cr.) 3,000
Balance b/d
17,000
Total
20,000
In the general ledger, the amount of total sales return will be booked in the following manner: Date
Sales Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) Total sales 6,000 31/03 Total sales for return for the the month of month of march, 2002 march, 2002 Balance b/d Total
39,000 45,000
Total
© Copyright Virtual University of Pakistan
Code Amount # Rs. (Cr.) 45,000
45,000
190
Financial Accounting - I – MGT101 Debtors Control Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 31/03 Total sales for 45,000 Total sales return the month of for the month of march, 2002 march, 2002
Total
45,000
VU Code Amount # Rs. (Cr.) 6,000
Balance b/d
39,000
Total
45,000
Again if we total the balance of three accounts of the debtors’ ledger on Mar 31, 2002: A 9,000 B 13,000 C 17,000 Total 39,000 It will be the same as the balance in the debtors control account of the general ledger. Receipts from Debtors Here, we need a total figure of receipts from debtors. Therefore, when control accounts are used, we maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank books are not used. On the receipts side of the cash and bank book, a column is added in which receipts from debtors are separately noted. This type of cash / bank book is also called multi column cash / bank book. A sample of the receipt side of cash / bank book is given hereunder: Cash / Bank Book Receipt Side Date No
Narration / Particulars
Ledger Code
Receipt Receipt from Amount Debtors 10,000 500
Received from A
5,000
5,000
300 Received from B
2,500
2,500
Received from A
1,000
1,000
Received from C
1,500
1,500
950 1,000 Total
22,750
© Copyright Virtual University of Pakistan
9,000 191
Financial Accounting - I – MGT101
VU
Subsidiary Books for Purchases/Creditors Recording of creditors is similar to debtors. The subsidiary books maintained in case of purchases / creditors are: • Purchase Journal / Purchase Day Book – individual purchases are recorded in this Journal. • Purchase Return / Return outward Journal – If the volume of returns is also high, then these are also recorded in a separate register. • Creditors Ledger – this ledger maintains record of individual creditors. The information flows to the creditor control account in the general ledger as follows: Opening balance of List of creditor balances drawn up to the end of previous creditors period. This also confirms with the aggregate balance of the creditors ledger. Credit Purchases Individual credit purchase is recorded in the purchase journal. Total of this journal is posted into the creditors control account periodically. Purchase Return In case the transaction volume of purchase return is high, then, these are recorded in the purchase return journal. Periodically, the total is posted in the creditors control a/c. Cheques / Cash List of payments is extracted from cash and bank book. Or a Paid separate column is maintained in cash and bank books for this purpose. Closing Balance This is the balancing figure. It can also be checked with the total of balances in creditors’ ledger. Example # 2: Let’s consider the following data for the month of March, 2002: Purchase Journal Date
Name / Debtor
Amount
Mar 01, 2002
X
5,000
Mar 10, 2002
Y
10,000
Mar 25, 2002
Z
15,000
Total
30,000
The above mentioned record will be posted in the personal ledger accounts of X, Y & Z (Creditors ledger account) in the following manner:
© Copyright Virtual University of Pakistan
192
Financial Accounting - I – MGT101 X’s Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 01/03
Date
Date
Balance b/d
5,000
Total
5,000
Particulars
Y’s Account Account code---Code Amount Date Particulars # Rs. (Dr.) 10/03
Balance b/d
10,000
Total
10,000
Particulars
Total
Total
Z’s Account Account code---Code Amount Date Particulars # Rs. (Dr.) 25/03
Balance b/d
15,000
Total
15,000
VU Code Amount # Rs. (Cr.) 5,000
5,000 Code Amount # Rs. (Cr.) 10,000
10,000 Code Amount # Rs. (Cr.) 15,000
Total
15,000
In the general ledger, the amount of total purchases will be booked in the following manner:
© Copyright Virtual University of Pakistan
193
Financial Accounting - I – MGT101 Purchases Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 31/03 Total 30,000 purchases for the month of march, 2002
Total Date 31/03
30,000
30,000
Total
30,000
Code Amount # Rs. (Cr.)
Balance b/d
30,000
Total
30,000
Creditors Control Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) Total purchases for the month of march, 2002 Balance b/d
VU
Code Amount # Rs. (Cr.) 30,000
Total
30,000
Now, if we total the balance of three accounts of the creditor’s ledger on Mar 31, 2002: X 5,000 Y 10,000 Z 15,000 Total 30,000 It will be the same as the balance in the creditors control account of the general ledger. Recording of Purchase Return Let’s say that the purchase return journal show the following picture for the month of March, 2002: Purchase Return Journal Date Name / Debtor Amount Mar 01, 2002 X 500 Mar 10, 2002 Y 1,000 Mar 25, 2002 Z 1,500 Total 3,000 The above mentioned record will be posted in the personal ledger accounts of X, Y & Z (Creditors ledger account) in the following manner: © Copyright Virtual University of Pakistan
194
Financial Accounting - I – MGT101 X’s Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 01/03 500 01/03
Balance b/d Total Date
Particulars
10/03 Balance b/d Total Date
Particulars
25/03
4,500 5,000
Total
Y’s Account Account code---Code Amount Date Particulars # Rs. (Dr.) 1,000 10/03 9,000 10,000 Total Z’s Account Account code---Code Amount Date Particulars # Rs. (Dr.) 1,500 25/03
Balance b/d
13,500
Total
15,000
VU Code Amount # Rs. (Cr.) 5,000
5,000 Code Amount # Rs. (Cr.) 10,000
10,000 Code Amount # Rs. (Cr.) 15,000
Total
15,000
In the general ledger, the amount of total purchases will be booked in the following manner: Date 31/03
Purchases Account Account code---Particulars Code Amount Date Particulars # Rs. (Dr.) Total 30,000 31/03 Total purchases purchases for return for the the month of month of march, march, 2002 2002
Total
30,000
Code Amount # Rs. (Cr.) 3,000
Balance b/d
27,000
Total
30,000
© Copyright Virtual University of Pakistan
195
Financial Accounting - I – MGT101 Creditors Control Account Account code---Date Particulars Code Amount Date Particulars # Rs. (Dr.) 31/03 Total 3,000 31/03 Total purchases purchases for the month of return for the march, 2002 month of march, 2002 27,000 Balance b/d
VU Code Amount # Rs. (Cr.) 30,000
Total 30,000 Total 30,000 Now, if we total the balance of three accounts of the creditor’s ledger on Mar 31, 2002: X 4,500 Y 9,000 Z 13,500 Total 27,000 It will be the same as the balance in the creditors control account of the general ledger. Payment to Creditors Here, we need a total figure of payment to creditors. Therefore, when control accounts are used, we maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank books are not used. On the payment side of the cash and bank book, a column is added in which payments to creditors are separately noted. This type of cash / bank book is also called multi column cash / bank book. A sample of the payment side of cash / bank book is given hereunder: Cash / Bank Book Payment Side Date
No Narration / Particulars
Ledger Payment Payment to Code Amount Creditors 500 5,000
Received from A
2,500
2,500
3,000 Received from B
1,500
1,500
1,000 Received from C
1,500
1,500
1,950 1,500 Total
18,450
© Copyright Virtual University of Pakistan
5,500
196
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