Control accounts: practice questions

How to approach these questions

A control account summarises many individual customer or supplier accounts into one total account. First identify which one you are building. The sales ledger control account (total trade receivables) summarises what customers owe.

The purchases ledger control account summarises what the business owes suppliers. Check whether you must also reconcile it to the list of individual balances. The normal balance guides every entry: a receivables control account has a debit balance and a payables control account has a credit balance.

Lay the account out as a T-account and place each item on the side that matches its effect on the balance. In the sales ledger control account, the opening receivables and credit sales go on the debit side, because they increase what customers owe. Receipts from customers, discount allowed, returns inwards, irrecoverable debts written off and contra entries go on the credit side, because they reduce it.

The purchases ledger control account mirrors this. Opening payables and credit purchases go on the credit side.

Payments to suppliers, discount received, returns outwards and contras go on the debit side. Asking whether an item raises or lowers the balance is safer than memorising long lists.

Enter the items in the order given, then balance the account. For example, a sales ledger control account opens with receivables of RM12,000. Credit sales are RM40,000, receipts from customers are RM38,000, discount allowed is RM600, returns inwards are RM1,400 and irrecoverable debts written off are RM500.

The debit side totals 12,000 + 40,000 = RM52,000. The reductions on the credit side total 38,000 + 600 + 1,400 + 500 = RM40,500.

The closing balance is RM11,500. Show the totals and the balancing figure, because the method marks depend on visible working.

Contra entries cause the most trouble. A contra (set-off) arises when the same person is both a customer and a supplier, and the two amounts are offset. It reduces both control accounts.

So it is a credit in the sales ledger control account and a debit in the purchases ledger control account. Students often put it on the wrong side or forget it.

Discount allowed belongs in the receivables control account and discount received in the payables control account. Swapping them is a common and avoidable error.

Many questions then ask you to reconcile the control account balance with the total of the individual balances. Take each error in turn and decide whether it affects the control account, the list of balances, or both. An error in a total posted from a day book affects the control account, because that account is built from those totals.

An error in one customer's account affects only the list. Set out two small workings side by side, adjust each for the errors that touch it, and confirm the corrected figures agree.

Watch these traps. A refund to a customer increases what they owe again, so it is a debit in the sales ledger control account. Irrecoverable debts written off reduce receivables and must not be left out.

Returns inwards relate to customers and returns outwards relate to suppliers. Keep the two control accounts completely separate. Finally, check that the closing balance is on the normal side.

If control account sides and contras keep going wrong, one of our teachers can run through them with you using questions like these. Book a trial class