How to prepare a purchases ledger control account

Step by step

1. Bring down the opening balance. Start with the opening total owed to suppliers. This is usually a credit balance.
2. Add credit purchases. Credit the account with credit purchases for the period.
3. Subtract payments and discounts. Debit payments made to suppliers and any discount received.
4. Subtract returns. Debit purchases returns.
5. Balance the account. The closing balance should equal the total of the individual supplier balances.

Worked example

Opening RM4,000 + credit purchases RM40,000 − payments RM38,000 − discount received RM400 − returns RM600 = closing RM5,000.

Understanding the method

Each supplier has a personal account in the purchases ledger. The control account sits above them all and shows the total owed to suppliers. It is built from the same transactions in total, so its closing balance should equal the sum of the individual supplier balances.

If the two agree, the purchases ledger is arithmetically correct.

What the business owes suppliers is a liability, so the account has a credit balance. Anything that increases what you owe is a credit. Anything that reduces it is a debit.

Credit purchases increase the liability, so they are credits. Payments to suppliers, discounts received, returns outwards (goods sent back to suppliers) and contra set-offs all reduce it, so they are debits.

The totals come from the books of prime entry. Credit purchases come from the purchases day book, payments and discounts from the cash book, and returns from the returns day book. Because these totals are compiled separately from the postings to individual accounts, a posting error shows up as a difference.

For each line in an exam question, ask whether it increases or decreases what you owe suppliers. Credit sales, discounts allowed and cash sales belong to other accounts and must be left out.

Here is an example. The opening balance is RM18,000. Credit purchases are RM52,000.

Payments are RM47,000, discounts received RM1,500 and returns outwards RM2,000. A contra of RM800 sets off an amount a supplier also owes as a customer in the sales ledger.

Credit side: 18,000 + 52,000 = RM70,000. Debit side: 47,000 + 1,500 + 2,000 + 800 = RM51,300. The closing balance is 70,000 − 51,300 = RM18,700.

Total the individual supplier balances. They should also come to RM18,700.

If they do not, a difference equal to one supplier's balance suggests an account was left out. A difference divisible by nine suggests reversed digits.

Common mistakes: putting discounts received on the credit side (they reduce what you owe, so they are debits), and mixing up returns outwards with returns inwards. Another is bringing in credit sales or discounts allowed.

A contra entry appears in both control accounts on opposite sides. Leaving it out of one puts both out of step.

If you mix up which side the contra entries and discounts go on, we can help. One of our teachers can build the purchases and sales control accounts with you side by side. Book a trial class

Related skills

• How to prepare a sales ledger control account
• How to prepare a trial balance

The methods here are standard accounting practice, with original figures. For your exam board's exact requirements, see exam boards and Sources.