Worked examples
Control accounts: worked examples
A fully worked sales ledger control account with commentary. Figures are our own.
Example 1
Prepare the sales ledger control account: opening balance RM8,000; credit sales RM55,000; receipts RM52,000; discount allowed RM700; sales returns RM1,300; irrecoverable debt written off RM500.
| Opening balance | RM 8,000 |
| Add: credit sales | RM 55,000 |
| Less: receipts | RM 52,000 |
| Less: discount allowed | RM 700 |
| Less: sales returns | RM 1,300 |
| Less: irrecoverable debt | RM 500 |
| Closing balance | RM 8,500 |
Try it yourself: what would the closing balance be if there were also RM200 of interest charged to a customer? (RM8,700, interest increases the amount owed.)
Method and where the marks are
Control accounts are summary accounts that check the sales ledger and the purchases ledger. The sales ledger control account (total trade receivables) summarises what happened to customers as a group.
The purchases ledger control account (total trade payables) does the same for suppliers. Its balance is built from totals in the books of prime entry. It should equal the sum of the individual customer or supplier balances.
When the two agree, the detailed records are very likely right. Start by deciding which control account you are building, then draw a T-account with labelled sides.
For the sales ledger control account, ask what increases and what decreases the amount customers owe. Debits increase receivables: the opening balance, credit sales from the sales day book, dishonoured cheques (the customer owes the money again) and any interest charged. Credits reduce receivables: cash and cheques received, discount allowed, returns inwards, and irrecoverable debts written off.
The balance carried down is the total still owed. For example, opening receivables are RM18,000, credit sales are RM42,000, receipts are RM40,000, discount allowed is RM800 and returns inwards are RM1,200. The closing balance is 18,000 + 42,000 − 40,000 − 800 − 1,200 = RM18,000.
The purchases ledger control account is the mirror image, so reason it out and do not memorise sides. Credits increase what the business owes: the opening balance and credit purchases from the purchases day book. Debits reduce it: payments to suppliers, discount received and returns outwards.
Payables are a liability, so the balance carried down sits on the credit side. For each item ask whether it makes the business owe more or less.
Anything that increases a liability is a credit. Anything that settles or reduces it is a debit.
A few items are easy to misplace. Discount allowed appears only in the sales ledger control account and discount received only in the purchases ledger control account.
A contra entry sets off a balance when the same person is both a customer and a supplier. It is a credit in the sales ledger control account and a debit in the purchases ledger control account, for the same amount. It must appear in both.
Refunds to customers and interest charged have a place only when the question mentions them. Work strictly from the information given, and use totals from the day books, not individual invoices.
Control accounts give an internal check, because the totals come from the books of prime entry, independent of the personal accounts. They show total receivables and payables at a glance. They also narrow an error search to one ledger.
Label the account fully, and show a distinct balance carried down and brought down. If asked to reconcile, present a short statement that adjusts the list of personal balances for items such as an undercast or a transposition. Carry on until it equals the control account balance.
Marks are mostly lost by putting an item on the wrong side, especially in the purchases ledger control account. Confusing discount allowed with discount received is also common. Forgetting that contra entries appear in both accounts, or treating an irrecoverable debt as a purchase item, loses marks too.
Cash sales and cash purchases never belong in a control account, because they never create a receivable or payable. Finish by checking that your closing balance is on the expected side.
If control account sides keep going wrong in your answers, we can help. One of our teachers can go through them with you and give you a quick test for each item. Book a trial class
These are our own worked solutions and commentary, not the board's mark scheme. For official papers, see the exam boards page.
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