The general ledger holds one account for everything customers owe and one for everything owed to suppliers. Behind them are the individual accounts in the receivables and payables ledgers. If every posting was correct, each total equals the sum of its individual balances. Checking that they agree catches posting errors that the trial balance cannot see.
This topic covers the two control accounts, the reasons their totals may differ from the ledgers, how to reconcile them, and how to reconcile a supplier’s statement with the supplier’s account.
A control account question appeared in 6 of the 20 diets reviewed, usually as a reconciliation for 8 to 14 marks, with Section A items on the credit side of the receivables control account. Read books of prime entry, sales and purchases and the bank reconciliation first. The next topic covers correction of errors.
In 30 seconds
A Control account represents the total of many separate balances. The Receivables control account (debit balance) shows what all customers owe and the Payables control account (credit balance) what is owed to all suppliers. The individual ledgers are memorandum records. Reconcile by comparing the control balance with the list of ledger balances, find the reasons for any difference, and correct Either the control account Or the ledger balances.
If a difference remains, an error is undetected. A Supplier statement is reconciled with the supplier’s ledger account in the same way. None of these errors shows up in a trial balance.
The control accounts
A control account represents the total value of a number of separate balances. The day book totals are posted to it, and a list of the individual balances supports it. Each individual account is held in a separate ledger.
| Receivables control account (debit balance) | |
|---|---|
| Debit (adds to receivables) | Balance b/d; credit sales; dishonoured cheques; revenue adjustment where a customer fails to take a discount expected |
| Credit (reduces receivables) | Cash received; sales returns and credit notes; bad debts written off; contra entries; revenue adjustment where a customer takes a discount not expected; balance c/d |
| Payables control account (credit balance) | |
|---|---|
| Credit (adds to payables) | Balance b/d; purchases |
| Debit (reduces payables) | Cash paid; discounts received; purchase returns; contra entries; balance c/d |
Information needed to prepare them
Background. May 2019 asked for the sources of information in a table. The totals come from the books of prime entry.
| Control account | Information | Record it comes from |
|---|---|---|
| Receivables | Credit sales | Sales day book |
| Sales returns | Sales returns day book | |
| Cash and discounts | Cash book | |
| Bad debts, contra, dishonoured cheques | Journal | |
| Payables | Credit purchases | Purchases day book |
| Purchase returns | Purchases returns day book | |
| Payments and discounts received | Cash book | |
| Contra | Journal |
Uses of control accounts
Background. March/July 2020 asked for four uses.
The purpose is to check that transactions have been recorded correctly, and the uses follow:
- they detect errors in the ledgers and the day books
- they give a quick figure for total receivables and payables for the statement of financial position
- they help prevent fraud, because the control account is kept by someone other than the ledger clerks
- they let the work be divided among staff
Why the totals differ
The control balance and the sum of the ledger balances may differ for several reasons. These errors do not upset the totals of debits and credits in the general ledger, so a trial balance will not find them. A reconciliation will.
| Error | Correct |
|---|---|
| The day book total was posted to the control account, but one individual transaction was not posted to the ledger | The individual balance |
| The total of cash received or paid was posted to the control account, but one receipt or payment was not posted to the ledger | The individual balance |
| The day book was added up wrongly, so the wrong total went to the control account, while the individual accounts are right | The control account |
| A contra entry was recorded in the general ledger but not in the ledgers, or the reverse | The record with the missing entry |
Preparing the reconciliation
Start by comparing the control balance with the total of the ledger balances. If they differ, find the reasons, and when you find them, correct the error. A correction changes the control account balance, one or more individual balances, or both. After every correction the two totals must be equal. If a difference remains, at least one error is still undetected.
The usual layout is an adjusted control account on one side and a list of the ledger total with adjustments on the other.
Supplier statements
Suppliers commonly send a monthly statement listing the sales, returns, payments and discounts of the month and ending with the balance the customer owes according to the supplier’s books. The customer compares it with the supplier’s account in its own payables ledger. Either side may be wrong. The supplier may have omitted a transaction, or the customer may have left something out of its records.
The omissions can be sales, purchases, payments, discounts, contra entries and returns or credit notes.
- Compare the two balances.
- Compare the transactions listed on the statement with those in the ledger account to find the reasons.
- If the supplier has made an error or omission, notify the supplier and amend the Statement balance for the purpose of the reconciliation.
- If the customer made the error, correct the Ledger account, so its balance changes.
When all differences are explained, the amended statement balance equals the corrected ledger balance.
The ideas in more depth
Memorandum accounts. The control account is part of the double entry. The ledgers are not, so an error in a ledger cannot upset the trial balance, which is why the reconciliation is needed. Which side to correct. If the day book was added wrongly, the control account is wrong. If one posting was missed, the ledger is wrong. Ask which record holds the mistake.
The control account and fraud. A clerk who keeps the ledger cannot hide a theft without also altering the control account kept by someone else.
Worked example: Kano Wholesalers
Scenario. The receivables control account shows ₦684,500. The list of ledger balances totals ₦647,800.
Investigation finds:
- (1) a credit sale of ₦12,400 to Ade was not posted to his account
- (2) sales returns of ₦6,500 by Bola were entered in her account but not in the general ledger
- (3) a contra of ₦9,000 with Chuka, who is also a supplier, was not entered anywhere
- (4) a discount of ₦3,200 that Dike took, which was not expected, was entered in his account only
- (5) the sales day book was overcast by ₦10,000
- (6) a debit balance of ₦4,600 was left out of the list
Required: reconcile.
- Control account.
684,500 − returns 6,500 − contra 9,000 − discount 3,200 − overcast 10,000 = 655,800. - Ledger list.
647,800 + sale 12,400 − contra 9,000 + omitted balance 4,600 = 655,800. - The two agree. Items 1 and 6 corrected the ledger, items 2, 4 and 5 the control account, and item 3 both.
- Supplier statement. Zenith’s statement shows ₦148,000. Our ledger shows ₦75,500. We paid ₦40,000 not yet credited by Zenith, and returned goods of ₦8,500 not credited. Our ledger omitted an invoice of ₦22,000 and a disallowed discount of ₦2,000.
Statement: 148,000 − 40,000 − 8,500 = 99,500.
Ledger: 75,500 + 22,000 + 2,000 = 99,500.
They agree.
Common mistakes in the exam
- Correcting the wrong record. Identify whether the control account or the ledger holds the error.
- Adjusting both for a missed individual posting, which lowers or raises the control balance wrongly.
- Forgetting that a contra needs entries in the control accounts and in both ledgers.
- Putting sales or cash sales in the receivables control account. Only credit transactions belong there.
- Amending the supplier’s statement for the customer’s own errors.
Quick revision
- Receivables control: debit sales, dishonoured cheques. Credit cash, returns, bad debts, contra.
- Payables control: credit purchases. Debit cash paid, discounts received, returns, contra.
- Ledgers are memorandum. Control accounts are double entry.
- Differences: missed postings (correct the ledger), day book errors (correct the control), contra errors.
- Supplier statement: correct the statement for supplier errors and the ledger for your own.
Practice questions
These are original questions in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one first.
Section A style: multiple choice
Question 1. A control account is:
- A summary account representing the total of many balances
- A list of customers
- A bank statement
- A budget
Show the answer
A. A control account totals many individual balances, such as all receivables or all payables, in one account.
Question 2. The receivables ledger is:
- Part of the double entry
- A book of prime entry
- A financial statement
- A memorandum record
Show the answer
D. It mirrors the control account without a double entry.
Question 3. Which item is on the credit side of the receivables control account?
- Sales returns
- Credit sales
- Dishonoured cheques
- Opening balance
Show the answer
A. Returns reduce what customers owe.
Question 4. A customer’s dishonoured cheque is entered on the:
- Debit side of the receivables control account
- Credit side of the receivables control account
- Debit side of the payables control account
- Credit side of sales
Show the answer
A. The customer owes the money again.
Question 5. The control balance is ₦450,000 and the ledger list ₦438,000. A sale of ₦12,000 was left out of one customer’s account. After correction the ledger total is:
- ₦426,000
- ₦450,000
- ₦438,000
- ₦462,000
Show the answer
B. 438,000 + 12,000 = 450,000.
Question 6. The sales day book was overcast by ₦5,000. The correction is to:
- Reduce one customer’s account
- Reduce the control account by ₦5,000
- Increase the control account
- Make no change
Show the answer
B. The wrong total went to the control account.
Question 7. The general ledger entry for a contra between the ledgers is:
- Dr Receivables control, Cr Payables control
- Dr Bank, Cr Receivables control
- Dr Payables control, Cr Receivables control
- Dr Sales, Cr Purchases
Show the answer
C. Both balances fall.
Question 8. A trial balance does not reveal a control account error because:
- It is not prepared
- Ledgers are in the trial balance
- Errors are always found
- Debits still equal credits in the general ledger
Show the answer
D. An error between the control account and the subsidiary ledger does not unbalance the general ledger, so debits still equal credits.
Question 9. A supplier omitted a payment from its statement. The customer should:
- Change its own ledger
- Ignore it
- Notify the supplier and amend the statement balance for the reconciliation
- Write off the debt
Show the answer
C. The customer cannot change the supplier’s statement. It tells the supplier and adjusts the statement balance in its reconciliation.
Question 10. The balance on the payables control account is normally a:
- Debit
- Nil
- Either, at random
- Credit
Show the answer
D. It is a liability.
Section B style: written questions
Question 11 (10 marks). (a) Define a control account and explain why the ledgers are memorandum accounts. (4 marks) (b) State FOUR items on the credit side of the receivables control account. (4 marks) (c) Explain why a trial balance cannot find control account errors. (2 marks)
Question 12 (20 marks). The payables control account of Gombe Ltd shows a credit balance of ₦512,400 and the list of ledger balances totals ₦529,200.
Errors: (i) the purchases day book was undercast by ₦18,000; (ii) payments of ₦64,700 were posted to the control account as ₦56,700; (iii) a contra of ₦15,000 was entered in the ledgers but not in the control account; (iv) a debit balance of ₦6,200 was listed as a credit; (v) a credit note of ₦9,400 was entered in the control account but not in the ledger.
(a) Prepare the corrected payables control account. (8 marks) (b) Reconcile the ledger list to the corrected balance. (6 marks) (c) State THREE uses of control accounts and TWO sources of information for the payables control account. (6 marks)
A further written question
Question 13 (10 marks). (a) List THREE reasons why a supplier’s statement balance may differ from the supplier’s account in your ledger, and say how each is resolved. (6 marks) (b) A statement shows ₦96,000 and the ledger ₦81,500. We paid ₦20,000 not credited by the supplier, and our ledger omitted a credit note of ₦5,500. Reconcile. (4 marks)
Model answers
Show the model answer to Question 11
(a) A control account is a summary account representing the total of many balances. The individual ledgers are memorandum because they mirror the control account without the opposite entry. (b) Cash received; sales returns; bad debts written off; contra entries (also discounts taken when not expected). (c) These errors do not change the totals of debits and credits in the general ledger, so the trial balance still agrees.
Show the model answer to Question 12
(a) Control account. Balance b/d 512,400. Add day book undercast 18,000. Less payments understated 8,000 and contra 15,000. Corrected balance ₦507,400.
(b) Ledger.
- 529,200 − 12,400 (wrong-side balance, twice 6,200) − 9,400 (credit note) = ₦507,400.
- They agree.
(c) Uses: detect errors; give a quick total for payables; prevent fraud. Sources: purchases day book; cash book (also purchases returns day book, journal).
Show the model answer to Question 13
(a) The supplier omitted a transaction: notify it and amend the statement. We omitted a transaction: correct our ledger. A timing difference such as a payment in transit: the statement balance catches up.
(b)
- Statement 96,000 − 20,000 = 76,000.
- Ledger 81,500 − 5,500 = 76,000.
- They agree.
Pathfinder on Control accounts and supplier statements
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
From the previous syllabus. Asks for a reconciliation of the receivables ledger control account and the ledger balances (8 marks), then a suspense account (2 marks).
Revise first: Preparing the reconciliation
From the previous syllabus. Asks for a reconciliation of the receivables control account (8 marks), a suspense account (4 marks) and a reconciliation of the payables control account (8 marks).
Revise first: Why the totals differ
From the previous syllabus. Asks you to explain the receivables control account and the payables control account (3 marks each), and to reconcile the control accounts with the ledger totals from ten items (8 marks).
Revise first: The control accounts
From the previous syllabus. Asks, in tabular form, for three sources of information and the records they come from for each of the receivables and payables control accounts.
Revise first: Information needed to prepare them
From the previous syllabus. Asks for a receivables ledger control account (7 marks), a purchases ledger control account (6 marks), four uses of control accounts (4 marks) and six accounting errors the trial balance cannot find (3 marks).
Revise first: Uses of control accounts
Asks for three reasons why a supplier’s statement may differ from the ledger and how they are resolved (6 marks), then a corrected receivables control account (10 marks) and a reconciliation to the ledger (4 marks).
Revise first: Supplier statements
Items ask which entries are on the credit side of the receivables control account, what features a control account has, and its principal function (for example November 2015 Q17, May 2019 Q8, March/July 2020 Q18, November 2020 Q6 and Q17, November 2021 and 2022 Q6, May 2022 Q19). Check Section A of every diet you practise.
Revise first: The control accounts
Source: ICAN Pathfinder, Financial Accounting. Diets covered: November Diet, 2015, May Diet, 2016, November Diet, 2016, May Diet, 2019, March/July Diet, 2020, November Diet, 2020, November Diet, 2021, May Diet, 2022, November Diet, 2022 and May Diet, 2024 (all previous syllabus). Diets before November 2014, and November Diet, 2024 onwards, are not covered here.
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