What a control account is
A business that sells on credit keeps an account for each customer. Those accounts make up the sales ledger, and they show who owes what.
The general ledger holds one account for the total: the sales ledger control account. It is the same account as Trade receivables, and the double entry is made there. The purchases ledger and the purchases ledger control account, which is Trade payables, do the same job for suppliers.
The control account is posted from totals: the totals of the day books and the cash book. Each customer's account is posted from the single invoices, credit notes and payments. Both are built from the same documents, so the two must agree.
Marram Flooring sells on credit. This is its sales ledger control account for March.
| Details | Debit | Credit |
|---|---|---|
| Balance brought down | 4,350.00 | |
| Credit sales, from the sales day book | 9,640.00 | |
| Sales returns, from the sales returns day book | 470.00 | |
| Money received from customers, from the cash book | 8,215.00 | |
| Balance carried down | 5,305.00 | |
| Total | 13,990.00 | 13,990.00 |
The balance carried down is £5,305.00: the total that customers owe at the end of March. It is a debit balance, because money owed by customers is an asset.
The three customer accounts in the sales ledger show £2,140.00, £1,245.00 and £1,470.00, which come to £4,855.00. That is £450.00 less than the control account, so something has been posted wrongly.
The difference divides exactly by 9, which can mean two digits were swapped. An invoice for £940.00 was posted to one customer's account as £490.00. The sales day book had the right figure, so the control account is right. The customer's account is corrected, and the list then comes to £5,305.00.
What you need to be able to do
- Say which ledger an account lives in: the general ledger, the sales ledger or the purchases ledger.
- Say which side of a control account each entry goes on, and which book its total comes from.
- Balance a control account and say what the balance means.
- Add up the list of individual balances and compare it with the control account.
- Work out which record an error has reached: the control account, the individual accounts or both.
- Correct the record that is wrong, and agree the two figures.
- Post a contra entry for a business that is both a customer and a supplier.
The order to learn it in
A control account is fed by the day books and the cash book, so they come first. These are the modules to take, first to last.
- Books of prime entry. The day books and the cash book. Their totals are what a control account is posted from.
- Coding and the ledgers. Its room on the three ledgers shows which account lives where, and how one payment is entered in two ledgers. The other rooms cover account codes and batch totals.
- Control accounts. The sales ledger control account, its balance, and a first reconciliation to the list of customer balances.
- Payables and VAT control accounts. The purchases ledger control account and its reconciliation, a contra entry for a customer who is also a supplier, and the VAT control account.
- Month-end checks. The control account reconciliations as a monthly check: what each one proves, what it cannot see, and what to do with a difference.
Posting a day book in full, total by total and invoice by invoice, is practised in the day book modules of the business documents topic.
What goes on each side
Anything that makes customers owe more is a debit in the sales ledger control account. Anything that makes the business owe its suppliers more is a credit in the purchases ledger control account.
| Entry | Sales ledger control account | Purchases ledger control account |
|---|---|---|
| Invoices, from the day book | Debit | Credit |
| Credit notes, from the returns day book | Credit | Debit |
| Money received or paid, from the cash book | Credit | Debit |
| A contra with the other ledger | Credit | Debit |
| The balance | Debit: an asset | Credit: a liability |
The gross total goes in, because the VAT is owed as well as the net price. A cash sale or a cash purchase never goes in: nothing is ever owed.
A contra sets one balance against the other when the same business is both a customer and a supplier. The amount is the smaller of the two balances, and no money moves.
Which record is wrong
When the list and the control account disagree, the first job is to work out which of the two an error has reached.
- The control account only
- a day book total added up wrongly, or a total posted to the wrong side. The control account is corrected
- The individual accounts only
- one invoice, credit note or payment posted wrongly to a customer's or a supplier's account, or an account left off the list. That account, or the list, is corrected
- Both records
- an invoice never entered in the day book, or entered there at the wrong amount. The two still agree, so the reconciliation cannot find it
The size of a difference is a clue. A difference the same as one entry means that entry was left out of one record. Twice one entry means the entry is on the wrong side. A difference that divides exactly by 9 can mean two digits were swapped.
Where people go wrong
- Posting single invoices to the control account. It is posted from the totals of the day books and the cash book.
- Treating the entry in a customer's account as a second double entry. It is on the same side as the entry in Trade receivables. It is the detail behind the total.
- Posting the net total. The customer owes the VAT too, so the gross total is used.
- Putting a cash sale or a cash purchase through a control account.
- Changing the control account when the error is in one customer's account, or the other way round.
- Forcing a difference to agree, or ignoring it. The cause is found, corrected and noted.
- Trusting an agreed reconciliation too far. It compares totals, so it cannot see an invoice that sits in the wrong customer's account.
What the practice looks like here
Ledger Drill teaches control accounts through questions, with no videos. A task shows a control account or a list of balances for one invented business, then asks you to work on it.
- Sort entries onto the debit side and the credit side of a control account.
- Type the balance carried down.
- Add up a list of balances and type the difference from the control account.
- Find the one wrong line in a control account or a list.
- Put the steps of a reconciliation in order.
- Post a contra entry to both control accounts.
Every answer is marked at once, with the rule behind it.
The modules and rooms are listed below, in order. A room that costs nothing carries a Free tag.
Practise it
- 1Buying and selling on credit8 min, easy
- 2Day books8 min, easy
- The sales ledger control account10 min, medium
- Reconciling a control account10 min, medium
- The general ledger and the two subsidiary ledgers10 min, easy
- What goes in the purchases ledger control account10 min, medium
- How to reconcile the purchases ledger control account11 min, medium
- Setting off a customer who is also a supplier9 min, medium
Words used here
- Control account
- A control account holds one total in the general ledger, such as the amount owed by all the credit customers together.
- General ledger
- The general ledger holds the accounts for assets, liabilities, capital, income and expenses. The double entry is made here.
- Sales ledger
- The sales ledger holds one account for each credit customer. It shows who owes the business money, and how much.
- Purchases ledger
- The purchases ledger holds one account for each credit supplier. It shows who the business owes money to, and how much.
- Trade receivables
- Trade receivables is the money that customers owe a business for sales made on credit. It is an asset.
- Trade payables
- Trade payables is the money a business owes its suppliers for goods bought on credit. It is a liability.
- Day book
- A day book is a book of prime entry that lists credit sales or credit purchases, one line for each invoice.
- Balance carried down
- The balance carried down is written on the smaller side of an account, so that both sides add up to the same total.
Questions
What is a control account?
One account in the general ledger that holds a total: what every credit customer owes, or what is owed to every credit supplier. Its balance must equal the individual balances added together.
Is Trade receivables the same as the sales ledger control account?
Yes. The Trade receivables account in the general ledger holds the total owed by all customers, and it is also called the sales ledger control account. Trade payables is also called the purchases ledger control account.
Is the control accounts practice free?
In part. 2 of the 19 rooms in these modules are free, and you can start one with no account: every room in Books of prime entry. The other rooms are part of Premium.
How long does it take to learn control accounts?
The 19 rooms in these modules take from 8 to 11 minutes each, by their own estimates. Added up that is 177 minutes, which is about 3 hours of practice.
Why do the control account and the list of balances disagree?
An error has reached one record and not the other. The control account is posted from day book and cash book totals. Each customer's or supplier's account is posted from the single documents.
Does an agreed reconciliation prove the ledger is right?
No. It proves that the totals match. An invoice posted to the wrong customer's account, or one left out of the day book altogether, still leaves the two figures agreeing.