Control Account I: Sales Ledger and Purchases Ledger Control Account

In the Bookkeeping Part 1 course we saw how the day books and cash books are posted to this account and an example of a PLCA is shown below. If this is not done it increases the likelihood that errors will be made that are not corrected. This can then mean that some customers will be asked to pay too much (which can damage relationships with them) and others might be asked to pay too little or not at all (which will damage the business’ cash flow). The Sales Ledger Control account (“SLCA”) in the General Ledger measures how much is owed to the business by all its customers. The Sales Ledger measures how much is owed to the business by each of its customers. The backbone of the accounting, Accounting Equation entails being balanced every time.

• In the Bookkeeping Part 1 course we saw how the day books and cash books are posted to this account and an example of a PLCA is shown below.
• In real business operations, paying on cash may not be the only option of purchasing goods.
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• Contra entry occurs when you have a creditor that is a debtor at the same time.

Control accounts the account which represents a particular sub ledger, sales ledger and purchases ledger control accounts. At the end of an accounting period the accounts are balanced off and a trial balance prepared to check the accuracy of the book keeping entries. If a trial balance fails to balance this usually indicates that an error or errors may have been made and needs to be identified. As the business expands the accounting requirements increase which may lead to more errors occurring which are very difficult to find.

What Are Control Accounts?

The closing balances on the statement of retained earningss should be equal to the sum total of the closing balances on the individual debtor accounts in the sales ledger. It follow as well that the closing balances on the purchases ledger control accounts should be equal to the sum total of the closing balances on the individual creditor  accounts in the purchases ledger. If the respective balances are not in agreement then it would suggest some form of irregularity in the records which would need investigation. It is not hard to understand the meaning behind each name, you sale your products/services to a debtors and hence the name sales ledger control account and debtors control account. Likewise, you purchase your products from creditors and hence the name purchase ledger control account and creditors control account.

Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. The interest would also be recorded in Cask Ltd’s supplier account in the Purchases Ledger. At the end of an accounting period, a bookkeeper will reconcile the SLCA to the Sales Ledger. She is a Business Content writer and Management contributor at 12Manage.com, where she contributes a business article weekly. She has over 2 years of experience in writing about accounting, finance, and business.

Control accounts

The individuals and other organizations that have direct transactions with the business are called personal accounts. SLCA indicates total trade receivables at a given point in time, and since trade receivables are personal accounts, SLCA also operates according to the golden rule for personal accounts. If you recall that there is a contra entry for cash and bank account; this application is similar to control accounts. Contra entry occurs when you have a creditor that is a debtor at the same time. So, a supplier or (a creditor) will supply you with goods on credit and at the same time purchasing goods (now acting as a debtor) from you on credit.

Also known as the “Trade debtors control A/C”, it shows the total trade debtors of a company at a given time. In other words, the sales ledger control account, shows the total of the amount owed to a business by its customers at a particular point of time, i.e. the total of Accounts Receivables. The sales ledger control account is also known as the ‘trade debtors control account’ and is part of the balance sheet. This account shows at any given time how much your customers owe you and your company.

Why Prepare Control Account?

From the above example, we may observe that there is duplication for posting of debit part from the Credit Sales. Out of many such internal control mechanisms, maintenance of Ledger Control Accounts is a control process. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. About the Author – Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya.

However, if you’re still using a manual ledger system, the purpose of control accounts is to take the balance of the accounts in the subsidiary ledgers and post the total into the general ledger. Doing this allows you to produce a trial balance and balance sheet without all of the transactions displayed. In real business operations, paying on cash may not be the only option of purchasing goods. And you, as the owner, purchased goods from suppliers (creditors) on credit. So, recording numerous numbers of customers and suppliers on credit (throughout one year period) could create a lot of errors. One way to ensure arithmetic accuracy is to do control accounts by bringing multiple debtors/creditors in a year to the control accounts (like a summary throughout the year).

Control accounts can be useful

Under a manual double-entry bookkeeping system, the totals from the books of prime entry are posted to the General Ledger accounts but it is the individual transactions that are posted to customer accounts in the Sales Ledger. In the general ledger, there are hundreds of thousands of accounts including expenses, income, liabilities, and asset accounts. Similarly, if every transaction will be recorded in the general ledger, it would become very difficult to organize the general ledger properly.

All the individual transactions posted to your customer ledger cards so invoices, credit notes and receipts are reflected in this account. This site contains free bookkeeping and accounting courses and is ideal for anyone looking to learn finance, bookkeeping or accounting. This site contains information on double-entry bookkeeping, basic accounting, credit control, business planning, etc. The video below will cover what has been taught so far in this post but will also demonstrate the basics of using control accounts.

The account will contain the total amount owing to suppliers, and it is usually reconciled with the supplier’s statement to ensure the accuracy of the purchase ledger. Prepare the respective sales ledger control account and purchases ledger control account for the month of April 2020. An example of a purchases ledger control account including interest charged by suppliers for late payment and contra set-offs shown in blue, is given below. The examples above are very basic and are standard double-entry accounting transactions.