PART E: PREPARING A TRIAL BALANCE
252
PAYABLES CONTROL ACCOUNT
Ref.
$
Ref.
$
Opening debit balances
Opening credit balances
b/d
8,300
(if any)
b/d
70
Purchases
PDB
31,000
Cash paid
CB
29,840
Interest paid on overdue
accounts
CB
35
Discounts received
CB
35
Cash received clearing
Returns outwards to
debit balances
CB
25
suppliers
PRDB
60
Closing debit balances
Closing credit balances
c/d
9,400
(if any)
c/d
45
39,405
39,405
Debit balances
b/d
45
Credit balances
b/d
9,400
Note. Opening debit balances in the payables control account would represent suppliers who owe the
business money, perhaps because the business has overpaid or because a credit note is awaited for
returned goods.
Posting from the journal to the memorandum receivables or payables ledgers and to the nominal ledger
may be effected at the same time; as in the following example, where C Cloning has returned goods with
a sales value of $50.
Journal entry
Ref.
Dr
Cr
$
$
Sales
NL 21
50
To receivables control
NL 6
50
To C Cloning (memorandum)
RL 13
–
50
Return of electrical goods inwards
3.4 Contra entries
Sometimes the same business may be both a receivable and a payable. For example, C Cloning buys
hardware from you and you buy stationery from C Cloning. In the receivables ledger, C Cloning owes you
$130. However, you owe C Cloning $250. You may reach an agreement to offset the balances receivable
and payable. This is known as a 'contra'. The double entry is as follows.
DEBIT Payables
control
$130
CREDIT Receivables
control
$130
You will also need to make the appropriate entries in the memorandum receivables and payables ledger.
After this, C Cloning will owe you nothing and you will owe C Cloning $120 ($250 – $130).
QUESTION
Payables control account
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?
ANSWER
PAYABLES CONTROL
$
$
Bank payments
79,500
Balance b/f (balancing figure)
16,970
Discounts received
3,750
Purchases
83,200
Contra with receivables
4,000
Balance c/f
12,920
100,170
100,170
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CHAPTER 14
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CONTROL ACCOUNTS
253
QUESTION
Receivables control account
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
One receivables ledger account with a credit balance of $800 has been treated as a debit balance
C
The cash receipts book has been undercast by $800
ANSWER
A
The total of sales invoices in the day book is debited to the control account. If the total is
understated by $800, the debits in the control account will also be understated by $800. Option
C would have the opposite effect: credit entries in the control account would be understated.
Option B would lead to a discrepancy of 2 $800 = $1,600.
3.5 Summary of entries
It may help you to see how the receivables ledger and receivables control account are used, by means of
a flow chart.
ORIGINAL
DOCUMENTS
Invoices
A = $100
Cheques
received
A = $120
B = $200
B = $150
BOOKS OF
PRIME ENTRY
Sales day book
Sales account
Cash book
Cash account
A
B
Total
Cr Total
sales $300
Dr Total $
sales 300
Cr Total
cash 270
Balance 30 Dr
Dr Total
cash $270
A
B
$
100
200
300
$
120
150
270
Receivables ledger
(personal accounts)
Receivables account
(control a/c)
A
100 120
Balance
= $20 Cr
B
200 150
Balance
= $50 Dr
Overall balance
= $30 Dr
LEDGER
ACCOUNTS
(NOMINAL
LEDGER)
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PART E: PREPARING A TRIAL BALANCE
254
Notes
1
The receivables ledger is not part of the double entry system (it is not used to post the ledger
accounts).
2
Nevertheless, the total balance on the receivables ledger (ie all the personal account balances
added up) should equal the balance on the receivables control account.
See now whether you can do the following question yourself.
QUESTION
Receivables and payables control accounts
On examining the books of Exports Co, you ascertain that on 1 October 20X8 the receivables ledger
balances were $8,024 debit and $57 credit, and the payables ledger balances on the same date $6,235
credit and $105 debit.
For the year ended 30 September 20X9 the following particulars are available.
$
Sales
61,400
Purchases
39,974
Cash from trade accounts receivable
55,212
Cash to trade accounts payable
37,307
Discount received
1,475
Returns inwards
1,002
Returns outwards
535
Irrecoverable debts written off
326
Cash received in respect of debit balances in payables ledger
105
Amount due from customer as shown by receivables ledger, offset against amount due
to the same firm as shown by payables ledger (settlement by contra)
434
Allowances to customers on goods damaged in transit
212
On 30 September 20X9 there were no credit balances in the receivables ledger except those outstanding
on 1 October 20X8, and no debit balances in the payables ledger.
Required
Write up the following accounts recording the above transactions bringing down the balances as on
30 September 20X9.
(a)
Receivables control account
(b)
Payables control account
ANSWER
(a)
RECEIVABLES
CONTROL
ACCOUNT
20X8
$
20X8
$
1 Oct
Balances b/f
8,024
1
Oct
Balances b/f
57
20X9
20X9
30 Sep
Sales
61,400
30 Sep
Cash received from
credit customers
55,212
Balances c/f
57
Returns
1,002
Irrecoverable debts
written off
326
Contra payables
control account
434
Allowances on goods
damaged
212
Balances c/f
12,238
69,481
69,481
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255
(b)
PAYABLES CONTROL ACCOUNT
20X8
$
20X8
$
1 Oct
Balances b/f
105
1 Oct
Balances b/f
6,235
20X9
20X9
30 Sep
Cash paid to credit
30 Sep
Purchases
39,974
suppliers
37,307
Cash
105
Discount received
1,475
Returns outwards
535
Contra receivables
control account
434
Balances c/f
6,458
46,314
46,314
4
The purpose of control accounts
Cash books and day books are totalled periodically and the totals posted to the control accounts. At
suitable intervals, the balances on the personal accounts are extracted and totalled. These balance totals
should agree to the balance on the control account. In this way, errors can be located and corrected.
4.1 Reasons for having control accounts
The reasons for having control accounts are as follows.
(a)
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 can 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. By comparing (i) and (ii) below, it is possible to identify the fact that errors have been made.
(i)
The total balance on the receivables control account with the total of individual balances
on the personal accounts in the receivables ledger.
(ii)
The total balance on the payables control account with the total of individual balances on
the personal accounts in the payables ledger.
(b)
The control accounts also assist in the location of errors, where postings to the control accounts
are made daily or weekly, or even monthly. If a clerk fails to record an invoice or a payment in a
personal account, or makes a transposition error, it would be a formidable task to locate the error
or errors at the end of a year, say, given the number of transactions. By using the control account,
a comparison with the individual balances in the receivables or payables ledger can be made for
every week or day of the month and the error found much more quickly than if control accounts
did not exist.
(c)
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(s) whose job it is to post entries to the receivables and payables ledger accounts.
(d)
To provide total 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 also
means 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.
However, particularly in computerised systems, it may be feasible to use receivables and payables
ledgers without the need for operating separate control accounts. In such a system, the receivables or
payables ledger reports produced by the computer constitute the list of individual balances as well as
providing a total balance which represents the control account balance.
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