How to reconcile a sales ledger control account

What credit customers owe is recorded in two places: once as a total, and once customer by customer.

Sales ledger

One account for each credit customer. It shows what that one customer owes.

Sales ledger control account

A single account in the general ledger. It holds the total owed by all the credit customers together. It is the Trade receivables account.

List of balances

Every customer's balance from the sales ledger, written down and added up.

Reconciliation

A check that two records of the same thing agree.

The two records are posted from different figures. The control account is posted from totals: the total of the sales day book, the total of the credit notes and the total received. Each customer's account is posted from the single invoices, credit notes and payments.

So a mistake can reach one record and not the other. That is why the two are compared.

Trade receivables is an asset, so the control account has a debit balance. A cash sale never goes into it, because nothing is ever owed.

Reconcile at the end of each month, after the month's totals have been posted.

1. Balance the control account.
2. Write down every customer's balance from the sales ledger, and add them up.
3. Compare the total with the balance on the control account. Work out the difference.
4. Check the list. Add it up again, and check that no customer was left off and no balance was copied wrongly.
5. Check the control account. Add up the day books again, and check that each total was posted for the right amount on the right side.
6. Check the customers' accounts. Look for an invoice, a credit note or a payment posted for the wrong amount or on the wrong side.
7. Correct each error in the record it reached. An error in a total is corrected in the control account. An error in one customer's account is corrected in that account.
8. Work out both figures again. They must now be the same.

A difference proves that something is wrong, but not where. Both records have to be checked.

An entry on the wrong side throws a balance out by twice its amount: once to take the wrong entry away, and once to put the right one in.

A difference that divides exactly by 9 points to two digits swapped in a figure. It is a clue, not proof.

Ravenscar Fabrics sells cloth on credit to three customers. Ignore VAT. This is its sales ledger control account for May, as posted.

The debits add up to £8,430.00 and the credits, before the balance, to £5,395.00. The balance is £3,035.00.

The list adds up to £3,359.00. The control account shows £3,035.00. The difference is £324.00.

The list was added up correctly and nobody was left off. Checking the postings finds two errors.

• The sales day book was added up £200.00 too low. The invoices come to £6,480.00, but £6,280.00 was posted.
• A credit note for £62.00 was posted to the debit side of Dale Upholstery's account. It belongs on the credit side.

The first error reached the control account only. Its balance goes up by £200.00, to £3,235.00. The same total went to Sales, so the correcting journal debits Trade receivables and credits Sales with £200.00.

The second error reached Dale's account only. It is on the wrong side, so the balance is out by twice £62.00, which is £124.00. Dale's balance falls from £1,341.00 to £1,217.00.

The list now adds up to £3,235.00. The control account shows £3,235.00. The two agree.

• Changing one record to match the other. The cause has to be found first, because either record can be the wrong one.
• Correcting the wrong record. A wrong day book total is put right in the control account. A wrong posting to one customer is put right in that customer's account.
• Treating a wrong-side entry as out by its own amount. It is out by twice the amount.
• Posting net amounts. Customers owe the VAT as well, so the control account and the customers' accounts both take the gross amount.
• Putting cash sales into the control account. It holds only what credit customers owe.
• Taking agreement as proof that every account is right. A payment in the wrong customer's account, or an invoice missing from both records, causes no difference.

• The corrected control account balance equals the corrected total of the list, to the penny.
• Every correction is explained by a document or a posting you can point to.
• The control account balance is a debit balance.
• No difference has been written off without an explanation.

A reconciliation is a stronger check when it is done every month, by someone who does not post the entries being checked, and is looked over by a second person.