Provided by
Academy of Professional Accounting (APA)
Professional Accounting Education
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ACCA F3
Financial Accounting (FA)
财务会计第十七讲
ACCA Lecturer: Carrie NI
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Part E: Preparing a Trial Balance
Control accounts
Bank reconciliations
Correction of errors
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E3: Control Accounts
What are control accounts?
Discounts
The operation of control accounts
The purpose of control accounts
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Control Account
Receivables and payables control accounts are the most
commonly examined control accounts.
A control account keeps a total record of a number of individual
items. It is an impersonal account which is part of the double
entry system.
At any time the balance on the receivables (payables) control
account should be equal to the sum of the individual balances
on the personal accounts in the receivables (payables) ledger.
A business must ensure that any transaction recorded in the
receivables ledger control account or the payables ledger
control account is also reflected in the memorandum ledgers.
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Control Account
An example is the best way to illustrate the operation of control accounts:
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Control Account
Learning example
Which of the following statements is NOT true?
A. The total of accounts in the receivables ledger should equal
the balance on the receivables control account.
B. The receivables control account is updated with totals from
the sales day book and the payments page of the cash book.
C. The total of the total column of the payments page of the
cash book is used to update the cash control account.
D. The total from the purchase returns day book is used to
update the payables control account.
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Discounts
There are two types of discounts:
Two types Accounting treatment
Trade discount – reduction in
cost of goods, ., regular
customers, bulk discount
Received: deduct from purchase
Allowed: deduct from sales
Cash/settlement discount –
reduction in amount payable, .,
for cash or prompt payment
Received: included as other income
Allowed: included as expenses
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Discounts
Accounting treatment —— Discount allowed
Sales are recorded net of (., after) trade discounts but
inclusive of (., before) settlement discounts.
Therefore trade discounts never appear in the financial
statements.
Settlement discounts allowed are recorded as discounts allowed
and are shown as an expense in the statement of profit of loss:
Dr Discounts allowed (P/L)
Cr RLCA (SOFP)
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Discounts
Learning example
a) On 1 January 20x7 a business made a sale on credit for
$12,000. A trade discount of $2,000 was available with
a further 10% settlement discount if payment were made
within 10 days.
Required: Record the initial sale
a) On , the customer pays for the goods taking
advantage of the settlement discount. The discount will
be 10% of sales value.
Required: Record the full settlement of the amount owed
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Discounts
Learning example cont’d
c) What would your answer to part b) if the settlement
discount were not taken?
Required
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Discounts
Account treatment —— Discounts received
Purchases are recorded net of trade discounts but inclusive
of settlement discounts.
Again trade discounts never appear in the financial
statements.
Settlement discounts received are recorded as discounts
received and are shown as sundry income in the statement
of profit or loss.
Dr PLCA (SOFP)
Cr Discounts received (P/L)
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Discounts
Learning example
Ryan Co. purchases goods worth $5,000 from Austin Co. Ryan
Co. will receive a 5% settlement discount if the goods are paid for
within seven days. Ryan Co. has every intention of taking
advantage of the settlement discount.
Required
a) Show the initial recording of the purchase.
b) Record the repayment for the goods assuming Ryan pays
within seven days.
c) Record the payment for the goods if payment is made after
seven days.
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Discounts
Sales tax and discounts
Sales tax is calculated on the amount after all discounts, regardless of
whether the discount is taken or not.
Learning example
Brick buys goods with a list price of $50,000 from Cement. Brick
receives a trade discount of 12% from Cement and a further discount of
4% if payment is made within 10 days. Sales tax is at 15%
Required
What amount should Brick show in Cement’s payables ledger to record
this purchase?
A. $48,576 B. $50,336 C. $50,600 D. $57,500
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Discounts
Supplier statement reconciliations
Reconciling items:
Payment in transit
Omitted invoices and credit notes
Other errors
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The Operation of Control Account
Learning example
A Co. has the following information:
10 January 20x6
Sells $150 of goods to customer A
Sells $200 of goods to customer B
15 January 20x6
A Co. purchases $100 of goods from supplier Y
A Co. purchases $1,300 of goods from supplier Z
21 January 20x6
A Co. receives full payment from customer B and this money is used
pay supplier Y.
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The Operation of Control Account
Required
1. Record the above transactions in the books of prime
entry and the memorandum ledgers.
2. Post the totals from the BOPE to the nominal ledger.
3. Balance off nominal ledger accounts.
4. Reconcile the memorandum ledgers to the control
accounts.
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The Operation of Control Account
Contra entries
Sometimes a business may have a customer which also
supplier the business with goods.
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The Operation of Control Account
Learning example
P Co. is a printing business which sells stationery to F Co., a florist. F Co.
supplies P Co. with flowers and plants for its offices.
During October, P Co. sells stationery worth $200 to F Co. and F Co. delivers
flowers and plants to P Co. worth $70. P Co. has the following amount in its books:
Receivables: $200
Payables: $70
The two businesses agree to offset the balances receivables and payable via a
contra.
The contra will be for the flower of the two amounts: $70.
This will decrease both receivables and payables by $70 and the remaining $130
can then be paid in cash.
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The Operation of Control Account
A contra entry is always recorded as:
Dr PLCA
Cr RLCA
This will reduce both receivables and payables.
Note that the memorandum ledgers will also need to be
updated for the contra entry.
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The Operation of Control Account
Returns, credit notes and refunds
Sometimes when a business has made a sale, the customer will return
the goods.
Steps:
1. Goods are sold to the customer for $250:
Dr RLCA $250
Cr Sales $250
2. Customer pays for goods:
Dr Bank $250
Cr RLCA $250
At this point the balance on the receivables ledger control account is nil.
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The Operation of Control Account
3. Customer returns the goods and is issued with a credit
note:
Dr Sales (returns) $250
Cr RLCA $250
This entry reverses the original sale.
The receivables ledger control account will show a credit
balance reflecting that the business owes money to the
customer. This could be offset against future purchases or
the customer may request a refund.
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The Operation of Control Account
4. The business refunds the customer:
Dr RLCA $250
Cr Bank $250
Once again the balance on the receivables ledger control
accounts is nil.
Again, the memorandum ledgers must also be updated.
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The operation of control account
Over payment
If a customer pays too much to settle an invoice or pays an
invoice twice the business will owe the excess to the
customer.
This may be held and treated like a credit note or the money
refunded to the customer.
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The Operation of Control Account
Interest on overdue accounts
If a customer is late in settling their account then an entity
may decided to charge them interest.
This will increase the amount they owe and will be shown as
interest receivable in the statement of profit or loss.
Interest on overdue accounts is recorded using the following
journal:
Dr RLCA
Cr Interest receivable (P/L)
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The Purpose of Control Account
Reasons for having control accounts
They provide a check on the accuracy of entries made in the
personal accounts in the receivables ledger and payables ledger.
The control accounts also assist in the location of errors, where
postings to the control accounts are made daily or weekly, or even
monthly.
Where there is separation of clerical (bookkeeping) duties, the
control account provides an internal check.
To provide total receivables and payables balances more quickly
for producing a trial balance or statement of financial position.
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The Purpose of Control Account
Control account reconciliations
If we add up the balances in the receivables and payables ledgers,
they should agree to the balances per the RLCA and PLCA.
RLCA
Balance b/d X
Sales X
Dishonored cheques X
Interest charged on X
late accounts
Balance b/d X
Cash Rec’d X
Discounts allowed X
Returns inwards X
Irrecoverable debts X
Contra with payables X
Balance c/d X
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The Purpose of Control Account
If not, an error must have occurred at some point in the
system. The easiest way to identify the error is to perform
reconciliation between the two amounts.
PLCA
Cash paid X
Discounts received X
Contra with rec’ables X
Returns outwards X
Balance c/d X
Balance b/d X
Purchase X
Interests on overdue X
accounts
Balance b/d X
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The Purpose of Control Account
If the balance on the control account does not agree with the sum of
balances extracted, the imbalance must be investigated. The main
discrepancies are due to:
An incorrect amount may be posted to the control account
because of a miscast of the total in the book of original entry (.,
adding up incorrectly the total value of invoices or payments).
A transposition error may occur in posting an individual’s balance
from the book of prime entry to the memorandum ledger.
A transaction may be recorded in the control account and NOT in
the memorandum ledger, or vice versa.
The sum of balances extracted from the memorandum ledger may
be incorrectly extracted or miscast.
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The Purpose of Control Account
Learning example
The following payables control account contains some errors:
What should be the closing balance when all errors are
corrected?
Payables control account
Balance b/f 13,440
Cash payments book 22,220
Purchase returns day book 870
36,530
Purchase day book 24,500
Discounts received 1,200
Balance c/f 10,830
36,530
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The Purpose of Control Account
Learning example
a) Required
Post the following transactions to and balance off the receivables
ledger control account.
1. Opening balance $613,000
2. Credit sales made during the month $302,600
3. Receipts from customers $311,000
4. Bad debts were written off $32,000
5. Discounts allowed fro prompt payment $3,400
6. Contras against amounts due to suppliers in payables ledger
$8,650
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The Purpose of Control Account
b) The receivables ledger list of balances totals to $563,900.
You have found the following errors:
1. The total of the sales day book was undercast by $3,600.
2. A credit balance of $450 was included in the list of balance
as a debit.
3. A customer balance of $2,150 was left out when the
receivables ledger list of balances was totaled.
Required
Reconcile the receivables ledger control account to the
receivables ledger list of balances.
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The Purpose of Control Account
Learning example
Minnie’s payables control account shows a balance of $19,700. She
discovers the following:
1. The purchase returns day book has been overcast by $480
2. A contra against a receivables ledger debit balance of $2,000 has
been recorded in the payables ledger but not in the control account.
3. Discounts received of $3,400 have been credited to the payables
control account.
What is the revised balance on Minnie’s payables control account?
A. $11,380 B. $14,780 C. $14,300 D. $10,900
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Summary
Provided by
Academy of Professional Accounting (APA)
Professional Accounting Education
