Subsidiary Ledgers & Control Accounts F. M. Kapepiso
The accounting cycle Transaction Source document Journal LEDGER Control a/cs Trial balance Financial statements
Learning objectives At the end of the lecture, you should be able to: Explain the meaning of a subsidiary ledger and control account Explain the principle of control accounts Draw up debtors control accounts Draw up creditors control accounts Identify sources of information for control accounts
Subsidiary ledger and control a/c A subsidiary ledger is a sub-account within the ledger e.g. sales ledger ( sub-ledger: customer account) Control accounts ( known as total accounts) is used to record the totals only of transactions passing through the subsidiary accounts. Control accounts are used as master accounts Two commonly used control accounts are: Debtors control account (receivables or customers)- record credit sales Creditors control accounts (payables or suppliers)- record credit purchases
Subsidiary ledger and control a/c Quick exercise Rebecca had the following transactions for the month of Credit Purchases Purchases returns January. 2 Jan -Jones $3700 12 Jan- Isaac $1200 9 Jan-Isaac $7300 21 Jan- Mary $600 17 Jan-Henry $6100 19 Jan-Mary $6200 27 Jan-David $8100 Credit Sales Sales returns 7 Jan -Smith $4000 12 Jan- Smith $700 11 Jan-Allan $3100 17 Jan- Wood $1300 13 Jan-Wood $4300 22 Jan-Gilass $2000 31 Jan-Wall $3700 Required: prepare the journal and post to the ledger
Principles of control accounts Transactions are recorded on the same side of the control a/c as on the subsidiary accounts If opening balances for subsidiary a/c is known, together with total amounts increasing these balances and total amounts decreasing these balances, then closing balances for subsidiary can be calculated. E.g. Total of opening balance 50,000 Add: increases 10,000 60,000 Less: decreases 12,000 Total of closing balance 48,000
Format: Debtors ledger control Dr Debtors ledger control Cr N$ N$ Balances b/d (large amount) Credit sales Returned cheques-r/d Interest charged to debtors Balances c/d (small amount) Balances b/d (small amount) Cash/cheques received from debtors cash discount allowed sales returns Bad bedts written off Set-off/ contra entries Balances c/d (large amount)
Format: Creditors ledger control Dr Creditors ledger control Cr N$ N$ Balances b/d (small amount) Balances b/d (large amount) Cash/ cheques paid to creditors Cash discount received Purchases returns Set off/contra entries Credit purchases Interest charged to creditors Balances c/d (small amount) Balances c/d (large amount)
Example 1 Prepare a debtors control account for the month of Feb 2016 from the following information: 01 Feb Sales ledger balances $17,491 29 Feb Credit sales for the month $42,591 29 Feb Sales returns $ 1,045 29 Feb Payment received from debtor $39,024 29 Feb Cash discount allowed $ 593 29 Feb Bad debts written off $ 296 The debtors figure at 30 Feb is to be entered as the balancing figure.
Example 2 Prepare a creditors control account for the month of Jan 2016 from the following information: 01 Jan Purchases ledger balances $14,275 31 Jan Credit purchases for the month $36,592 31 Jan Purchases returns $ 653 31 Jan Payment made to creditor $31,074 31 Jan Cash discount received $ 1,048 31 Jan Transfer of credit balances to sales ledger $ 296 The creditors figure at 31 Jan is to be entered as the balancing figure.
Example 3 The sales ledger of Mr K contains the following accounts on 01 Feb 2016: Meatma Retailer New age Cc balance $826.40 debit balance $293.49 debit The following transaction took place in February: 3 Feb Sold goods on credit to Meatma Retailer $ 338.59 and to New age Cc $127.48 20 Feb Meatma settled an invoice for $826,40 by cheque after deducting 2.5% cash discount 24 Feb New age Cc returned goods for $56.29 28 Feb Transferred the balance of New age Cc s account to the company s purchase ledger Required: 1. Write up and balance the personal a/c in the sales ledger 2. Prepare the debtors control a/c for the month of February
Sources of information for control accounts Debtors ledger control Opening balances list of debtors balances previous Credit sales totals from sales journal Sales return total of sales return journal Cheque and cash received cash book Discount allowed cash book Bad debts journal or bad debts written off a/c Closing balances list of debtors balances current
Sources of information for control accounts Creditors ledger control Opening balances list of creditors balances previous Credit purchases totals from purchases journal Purchases return total of purchases return journal Cheque and cash received cash book Discount received cash book Closing balances list of creditors balances current
Summary Control accounts ( or total accounts) are master accounts which control a number of subsidiary accounts. Two commonly used control accounts are: Debtors ledger control account Creditors ledger control account
Practice question 1 The following accounts appears in the sales ledger of Mr Shikongo for September 2015: Dr Ndapewa Cr 01 Sep Bal b/d 60,000 04 Sep Cash Book 30,000 20 Sep Sales Day Book 14,000 Dr Shali Cr 15 Sales Day Book 7,200 Dr S Day Cr 01 Sep Bal b/d 37,500 15 Sep Cash Book 17,500 30 Sep Sales Day Book 10,000
Practice question 1 On 30 September, Mr Shikongo discovered the following: A payment of $200 from Shali on 25 September had been omitted from her account Ndapewa returned goods costing $140 to Mr Shikongo on 23 September S Day was entitled to $250 cash discount, which had been omitted. Required: 1. Redraft the three ledger accounts, adjusting for the above items. 2. Prepare the sales ledger control account for September
Practice question 2 ABC proves the accuracy of its ledgers by preparing control accounts. At 01 March 2015 the following balances existed in the company s accounting records and the control accounts agreed: Accounts receivable ledger: Debit : Credit Accounts payable ledger: Debit : Credit 2,120 100 210 6,730 The following are the totals of transactions which took place during March, as extracted from the company records. Sales: cash : Credit 10,030 100,460 Purchases: cash : credit 90,980 150,300 Total receipt from customers 30,350 Total payment to suppliers 120,900 Cash discount allowed ( credit 3,500 customers) Cash discount received (credit 6,400 suppliers) Irrecoverable debts written off 1,900 Provision for bad debts 700 Refunds to cash customers 2,100 Debtors balance set-off against balance 2,900 in creditors Cheques returned by the bank 3,700 Interest on overdue debts (debtors) 450 Interest charged to creditors 1,200 Required: 3.1. Prepare the accounts receivable ledger control account at the end of March. (11 marks) 3.2. Prepare the accounts payable ledger control accounts at the end of March. (9 marks)
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