CHAPTER 17

Control accounts
Contents
 Internal check
 Control accounts
 Control account reconciliations
Internal check

What is it? Types of internal

check
 Also known as  A trial balance
internal controls,  Bank
ensure that
transactions to be reconciliations
recorded and  Control account
processed have
been authorised, reconciliations
that they are all  Segregation of
included and that
they are correctly duties
recorded and  Authorisation
Control accounts
 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
 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