Control Accounts

Introduction
Control accounts are general ledger accounts that summarise a large
number of transactions. As such they are part of the double entry system.
They are used to prove the accuracy of the ledger accounting system. They
are mainly used with regard to receivables and payables balances.
Accounting entries for credit sales and purchases
When a company transfers the daily total of the sales book into the general
ledger the double entry is:
Dr Receivables ledger control account
Cr Sales revenue.
When they transfer the total of the purchase day book the double entry is:
Dr Purchases
Cr Payables ledger control account
Memorandum accounts
Whilst maintaining control accounts most businesses will maintain what is
referred to as a 'memorandum.' This is a separate list of individual receivable
and payable amounts due from each customer and to each supplier,
respectively. This simple 'list of balances' is used as a record so that
companies know how much each customer is due to pay and how much they
are due to pay each supplier. This assists with credit control and cash flow
management.
A key control operated by a business is to compare the total balance on the
control account at the end of the accounting period with the total of all the
separate memorandum balances. In theory they should be identical. This is
referred to as control account reconciliation.
Note: the memorandum balances are often, confusingly, referred to as the
'receivables ledger' and the 'payables ledger.' Don't get these mixed up with
the control accounts in the main/general ledger!

Illustrative control accounts

Receivables ledger control account
Balance b/f

Balance b/f

Credit sales (SDB)

Sales returns (SRDB)

Bank (CB)

Bank (CB) dishonoured cheques

Irrecoverable debts (journal)

Bank (CB) refunds of credit balances

Discounts allowed

Interest charged

Contra

Balance c/f

Balance c/f

____

____

____

____
Balance b/f

Balance b/f

Balance b/f

Balance b/f

Bank (CB)

Credit purchases (PDB)

Purchases returns (PRDB)

Bank (CB) refunds of debit balances

Discounts received

Contra

Balance c/f

Balance c/f

____
X
____
Balance b/f

Balance b/f

Payables ledger control account

Abbreviation key:
SDB Sales day book
PDB Purchases day book
SRDB Sales returns day book
PRDB Purchases returns day book
CB Cash book
Note that any entries to the control accounts must also be reflected
in the individual memorandum accounts.
Contra entries
The situation may arise where a customer is also a supplier. Instead of both
owing each other money, it may be agreed that the balances are contra'd,
i.e. cancelled.
The double entry for this type of contra is:
Dr Payables ledger control account
Cr Receivables ledger control account
The individual receivable and payable memorandum accounts must also be
updated to reflect this.
Credit/debit balances in the wrong account
Sometimes the receivables ledger control account may show a credit
balance, i.e. we owe the customer money. These amounts are usually small
and arise when:

The customer has overpaid.

Credit notes have been issued for fully-paid-for goods.

Payment is received in advance of raising invoices.

The payables ledger control account may show a debit balance for similar
reasons.
Technically such balances should not exist and should be transferred to the
correct account. Thus a credit in a receivable account should be adjusted as
follows:
Dr Receivables
Cr Payables
Debit balances in the payables ledger will be adjust using exactly the same
double entry.