A control account is one summary ledger account for a whole group of customers or suppliers. Its closing balance must match the total of the individual accounts, which is why it acts as a check on the ledger.
This lesson is part of SPM Accounting controls. If the ledgers themselves still feel shaky, revisit double entry and ledgers first.
What goes into a receivables control account?
Ask one question for each item. Did it increase or decrease the total amount that customers owe?
Increases go on the debit side, because receivables are assets. Decreases go on the credit side. The source is the totals from the sales day book, the cash book and the returns journal.
Worked example: receivables control account
A business has the following figures for March. The opening total owed by customers is RM18 400.
| Item | RM | Effect on what customers owe |
|---|---|---|
| Credit sales | 62 500 | Increase |
| Dishonoured customer cheques | 700 | Increase, the debt returns |
| Cash and cheques received | 51 200 | Decrease |
| Discount allowed | 1 300 | Decrease |
| Sales returns | 2 400 | Decrease |
| Bad debts written off | 900 | Decrease |
The account is laid out with increases on the debit side and decreases on the credit side.
| Receivables control account | RM | RM | |
|---|---|---|---|
| Balance b/d | 18 400 | Bank | 51 200 |
| Credit sales | 62 500 | Discount allowed | 1 300 |
| Bank (dishonoured cheques) | 700 | Sales returns | 2 400 |
| Bad debts | 900 | ||
| Balance c/d | 25 800 | ||
| 81 600 | 81 600 |
The debit total is 18 400 + 62 500 + 700 = 81 600. The credits before the balance are 51 200 + 1 300 + 2 400 + 900 = 55 800, so the balance carried down is 81 600 − 55 800 = RM25 800. This should equal the total of the list of individual customer balances.
Payables control account
Payables are liabilities, so everything is mirrored. Opening balance and credit purchases are credits, because they increase what the business owes.
The opening total owed to suppliers is RM9 600. Credit purchases are RM34 200, payments to suppliers RM30 500, discount received RM800 and purchases returns RM1 100.
| Payables control account | RM | RM | |
|---|---|---|---|
| Bank | 30 500 | Balance b/d | 9 600 |
| Discount received | 800 | Credit purchases | 34 200 |
| Purchases returns | 1 100 | ||
| Balance c/d | 11 400 | ||
| 43 800 | 43 800 |
The credit total is 9 600 + 34 200 = 43 800. After the debits of 30 500 + 800 + 1 100 = 32 400, the balance is 43 800 − 32 400 = RM11 400.
The mistake that loses marks
The common slip is to put discount allowed on the debit side of the receivables account, because discount sounds like an expense. The discount reduced what customers owe, so in this ledger it is a credit.
A second slip is to include cash sales. Cash sales never appear, because no customer balance was created. If an item did not change a customer’s balance, leave it out.
Check yourself
A receivables control account starts with RM7 500 owed. Credit sales are RM28 000, cash received RM24 300, discount allowed RM450 and sales returns RM600. Find the closing balance.
Answer
Debits: 7 500 + 28 000 = 35 500.
Credits before the balance: 24 300 + 450 + 600 = 25 350.
Closing balance = 35 500 − 25 350 = RM10 150.
If cash sales of RM3 000 had been shown in the question, they would be left out, because they did not create a receivable.
What to study next
If the closing balance does not agree with the customer list, use tracing an omitted receipt through a control account. Then test the whole chapter with the accounting controls practice set.
To have a teacher work through control account questions with you, see online one-to-one Accounting tuition.