How to prepare a sales ledger control account

Step by step

1. Bring down the opening balance. Start with the opening total owed by customers. This is usually a debit balance.
2. Add credit sales. Debit the control account with credit sales for the period.
3. Subtract receipts and discounts. Credit the account with money received from customers and any discount allowed.
4. Subtract returns and write-offs. Credit sales returns and any irrecoverable debts written off.
5. Balance the account. The closing balance should equal the total of the individual customer balances.

Worked example

Opening RM6,000 + credit sales RM60,000 − receipts RM58,000 − discount allowed RM500 − returns RM1,000 = closing RM6,500.

Understanding the method

Each customer has a personal account in the sales ledger. Adding up hundreds of small balances is slow. The control account rebuilds the same total from the books of prime entry, so its closing balance should equal the sum of the customer balances.

If the two totals agree, the ledger is arithmetically sound. If not, there is an error.

The account is an asset (money owed to the business), so it opens with a debit balance. Anything that makes customers owe more is a debit. That includes the opening balance, credit sales and interest charged on overdue accounts.

It also includes dishonoured cheques, where the customer's payment bounced and the debt returns. Anything that makes them owe less is a credit: cash and cheques received, discount allowed, returns inwards and irrecoverable debts written off.

For each figure, ask whether customers now owe more or less. That tells you the side.

Watch the wording in exam questions. Total sales may include cash sales, which must be left out because they never created a debt. A figure called discount may mix discount allowed and discount received.

Only discount allowed belongs here. If the closing balance is given and one item is missing, total the known debits and credits, and the missing figure is whatever makes both sides agree.

Here is an example. Customers owed RM8,400 at the start. Credit sales were RM52,000.

Cash received was RM47,300, discount allowed RM1,200 and returns inwards RM900. A debt of RM600 was written off, and a customer's cheque for RM500 was dishonoured.

Debit side: 8,400 + 52,000 + 500 = RM60,900. Credit side: 47,300 + 1,200 + 900 + 600 = RM50,000.

The closing balance is 60,900 − 50,000 = RM10,900. The dishonoured cheque is a debit because it reopens a debt that the payment had closed.

Now add up every customer's closing balance from the sales ledger. It should also be RM10,900. If not, a difference equal to twice one figure suggests an item on the wrong side.

A difference such as RM90 or RM900 suggests reversed digits. Never force the totals to agree with an invented entry.

Common mistakes include including the provision for doubtful debts (an estimate, which never passes through this account). Another is missing contra entries. These arise when a customer is also a supplier and the balances are set off, and they go on the credit side. Another is forgetting that refunds to customers who overpaid are debited.

Also remember that the control account proves arithmetic only. If an invoice was never recorded, both totals will be wrong and still agree.

If you are unsure which side each item belongs on, we can help. One of our teachers can set up a control account with you and check your answers on past-paper questions. Book a trial class

Related skills

• How to correct errors using a suspense 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.