identify the books of prime entry as sources of information for the control account entries

Topic 3.4 – Control Accounts

Objective

Identify which books of prime entry supply the source information for each control‑account posting and state the items that must appear in a control‑account balance.

1. What is a Control Account and Why Do We Use It?

• A control account is a summary account in the general ledger that records the total of a related subsidiary ledger (e.g., sales ledger, purchases ledger, cash‑book).
• It serves three main purposes:
  • Verification: the balance in the control account must agree with the total of the subsidiary ledger, providing a quick check for errors.
  • Summarisation: it reduces the volume of posting to the general ledger by posting one total instead of many detailed entries.
  • Overview: it gives a rapid picture of a particular class of transactions (debtors, creditors, cash receipts, etc.).
• After posting to a control account, the balance is transferred to the appropriate general‑ledger account (e.g., Sales‑ledger control → Trade Debtors, Purchases‑ledger control → Trade Creditors).

2. Normal Balances of the Main Control Accounts

3. Books of Prime Entry (First Recording Point)

These are the books listed in the Cambridge IGCSE (0452) syllabus. Both the syllabus term and the common alternative are shown.

• Sales Journal (Sales Day Book)
• Purchases Journal (Purchases Day Book)
• Cash Receipts Book (Cash Receipts Journal)
• Cash Payments Book (Cash Payments Journal)
• General Journal (used for non‑routine transactions)
• Petty‑Cash Book (optional for small cash payments)

4. Mapping: Which Book(s) Feed Each Control Account?

Non‑routine entries: Items such as depreciation, adjustments, or error corrections are recorded in the General Journal and posted directly to the relevant control account(s); there is no separate “General‑journal control account”.

5. Information That Must Appear in Each Control Account

• Opening balance (debit for sales‑ledger & petty‑cash; credit for purchases‑ledger).
• All credit sales / credit purchases recorded in the appropriate journal.
• Returns (sales returns outwards, purchase returns inwards).
• Discounts (allowed on sales, received on purchases).
• Interest (overdue debtors or early‑payment creditors).
• Dishonoured cheques / bounced bills (affect the sales‑ledger).
• Refunds & contra entries (e.g., a debtor paying a creditor).
• Closing balance – must agree with the total of the subsidiary ledger.

6. How Posting Works – Flow of Information

1. Transaction is first recorded in the appropriate book of prime entry.
2. The total from that book is posted to the relevant control account in the general ledger.
3. Simultaneously (or immediately after) the individual amount is posted to the appropriate subsidiary ledger (customer, supplier, or cash‑book folio).
4. At period‑end the balance of the control account is transferred to the corresponding general‑ledger account.

7. Worked Examples

Example 1 – Credit Sale (Sales‑ledger control account)

1. Record in Sales Journal: Credit sale of £1 200 to Customer A.
2. Post to Control Account: Debit Sales‑ledger control account £1 200.
3. Post to Subsidiary Ledger: Debit Customer A’s individual account £1 200.
4. Result: The sum of all customer balances must equal the balance shown in the Sales‑ledger control account.

Example 2 – Credit Purchase (Purchases‑ledger control account)

1. Record in Purchases Journal: Credit purchase of £850 from Supplier B.
2. Post to Control Account: Credit Purchases‑ledger control account £850.
3. Post to Subsidiary Ledger: Credit Supplier B’s individual account £850.
4. Result: The sum of all supplier balances must equal the balance shown in the Purchases‑ledger control account.

8. Common Pitfalls

• Confusing the control account (which holds a total) with the subsidiary ledger (which holds individual balances).
• Posting the same amount twice – e.g., posting a sale directly to the general ledger *and* to the control account.
• Leaving out adjustments such as interest, refunds, or contra entries – they affect the control‑account balance.
• Assuming every control account carries a debit balance; remember the normal balance depends on the type of account (see Section 2).
• For cash‑book control accounts, forgetting that receipts and payments are kept in separate control accounts.

9. What the Syllabus Does Not Require

• You are not required to perform a full reconciliation of the control‑account balance with the subsidiary ledger; you only need to understand that they *should* agree.
• You are not required to show the subsequent posting from the control account to the general‑ledger account; the focus is on the summarising role of the control account.

10. Quick Reference – Key Points to Remember

• Every transaction is first recorded in a book of prime entry.
• Control accounts summarise the totals from the relevant subsidiary ledgers.
• The balance in a control account must have the correct normal (debit or credit) balance.
• Typical items to include: opening balance, sales/purchases, returns, discounts, interest, refunds, contra entries, and closing balance.
• Regularly check that the total of the subsidiary ledger agrees with the control‑account balance to spot errors early.
• Folios (column for reference) and three‑column running balances are used in the subsidiary ledgers, but they are not part of the control‑account requirement for the exam.