I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

3

   The operation of control accounts 

The two most important control accounts are those for receivables and payables. They are part of the 

double entry system. 

3.1 Example: accounting for receivables 

You might still be uncertain why we need to have control accounts at all. Before turning our attention to 

this question, it will be useful first of all to see how transactions involving receivables are accounted for 

by means of an illustrative example. Reference numbers are shown in the accounts to illustrate the cross 

referencing that is needed, and in the example: 

(a) 

Reference numbers beginning SDB refer to a page in the sales day book 

(b) 

Reference numbers beginning RL refer to a particular account in the receivables ledger 

(c) 

Reference numbers beginning NL refer to a particular account in the nominal ledger 

(d) 

Reference numbers beginning CB refer to a page in the cash book 

At 1 July 20X2, the Outer Business Company (OBC) had no trade accounts receivable. During July, the 

following transactions affecting credit sales and customers occurred. OBC offers its customers a 

settlement discount of 10% if they pay within seven days.  

(a) 

3 July: invoiced A Arnold for the sale on credit of hardware goods: $100. OBC expects the 

customer to take up the settlement discount. 

(b) 

11 July: invoiced B Bagshaw for the sale on credit of electrical goods: $150. OBC expects the 

customer to take up the settlement discount. 

(c) 

15 July: invoiced C Cloning for the sale on credit of hardware goods: $250. OBC does not expect 

the customer to take up the settlement discount. 

(d) 

10 July: received payment from A Arnold of $90, in settlement of their debt in full, having taken 

the permitted discount of $10 for payment within seven days. 

(e) 

20 July: received a payment of $150 from B Bagshaw, who did not claim the discount. 

(f) 

28 July: received a payment of $250 from C Cloning, who did not claim the discount. 

BPP Tutor Toolkit Copy

---

CHAPTER 14  

//

  CONTROL ACCOUNTS