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Unit 1(a) - Control accounts lecture slides.pdf
- 1. Introduction to Financial Accounting ACC2001 Unit1(a) – Control Accounts Prepared by Chris-Ann Thomas
- 2. Objectives By the endof this unit, you should be able to: Define key terms such as ledger, sales ledger, purchases ledger and control account Explain the main purposes of a control account Explain how control accounts relate to the double entry system Accurately prepare sales and purchases ledger control accounts Apply control accounts principles to general ledger accounts
- 3. What is aledger? A ledger records financial transactions from journals as debits and credits It holds account information that is needed to prepare financial statements Three main types of ledgers: Sales ledger Purchases ledger General ledger
- 4. Types of ledgers(cont’d) Sales Ledger A subsidiary ledger in which the personal accounts of credit customers (debtors) are kept The balance of a customer’s account shows the amount that the customer owes the business Therefore, the total of balances in the sales ledger is the total owed by credit customers (accounts receivable)
- 5. Types of ledgers(cont’d) Purchases Ledger A subsidiary ledger in which the personal accounts of credit suppliers (creditors) are kept The balance of a supplier’s account shows the amount that the business owes the supplier Therefore, the total of balances in the purchases ledger is the total owed to credit suppliers (accounts payable)
- 6. Types of ledgers(cont’d) General Ledger Master set of accounts Captures all the financial transactions relating to all asset, liability, capital, revenue and expense accounts It also contains summarised information from the subsidiary ledgers
- 7. What is acontrol account? A control account is “summary” account in the general ledger It contains the totals for transactions that have been otherwise recorded in subsidiary ledger accounts It is most commonly used to summarise the sales ledger and purchases ledger
- 8. Purposes of controlaccounts Act as an extension of the double entry system Provide a check of the accuracy of entries made in the sales ledger and purchases ledger accounts Assist in locating errors early in the accounting period, as control accounts may be prepared daily, weekly, etc Ascertain missing figures such as credit sales or credit purchases
- 9. Common types ofcontrol accounts The two most commonly used control accounts: Sales ledger control account Purchases ledger control account
- 10. Sales ledger controlaccount The sales ledger control account (SLCA) is used to verify the balance in the sales ledger accounts It is also called the total debtors control account
- 11. Sales ledger controlaccount (cont’d) SLCA Bal b/d (major) X Bal b/d (minor) X Credit sales** X Bad debts X Refund to credit customers X Cheques/cash received X Dishonoured cheque X Discount allowed X Bal c/d (minor ) X Returns inwards X Set off against purchases ledger X Bal c/d (major)** X
- 12. Purchases ledger controlaccount The purchases ledger control account (PLCA) is used to verify the balance in the purchases ledger accounts It is also called the total creditors control account
- 13. Purchases ledger controlaccount (cont’d) PLCA Bal b/d (minor) X Bal b/d (major) X Cheques/cash paid X Credit purchases** X Returns outwards X Refund from credit suppliers X Discount received X Cheques returned by suppliers X Set off against sales ledger X Bal c/d (minor) X Bal c/d (major)** X
- 14. Lecture question 1 Fromthe following data, prepare the SLCA and the PLCA May 1 Creditors 7,418 Debtors 2,176 Totals for the month: Credit purchases 10,260 Credit sales 21,370 Set off against both ledgers 200 Payments to suppliers 16,000 Cash received from customers 20,410 Discounts received 310 Discounts allowed 204 Returns outwards 179 Returns inwards 184
- 15. Solution to lecturequestion 1 SLCA Bal b/d 2,176 Cheques/cash received 20,410 Credit sales 21,370 Discount allowed 204 Returns inwards 184 Set off against purchases ledger 200 _____ Bal c/d 2,548 23,546 23,546 Bal b/d 2,548
- 16. Solution to lecturequestion 1 (cont’d) PLCA Cheques/cash paid 16,000 Bal b/d 7,418 Discount received 310 Credit purchases 10,620 Returns outwards 179 Set off against sales ledger 200 Bal c/d 989 ______ 17,678 17,678 Bal b/d 989
- 17. Other applications ofcontrol accounts The principles of control accounting can be used for other types of accounts. For example: Non current assets To verify assets based on acquisition, disposal, revaluation and depreciation Expenses and revenues Verifies amounts based on opening balances, payments during the year, and closing balances
- 18. Non current assets ASSETA/C Bal b/d (NBV) X Disposal (NBV) X Bank/cash (asset purchased) X Depreciation** X X Bal c/d X ASSET DISPOSAL A/C Asset (NBV) X Bank/cash (selling price) X Gain** X Loss** X
- 19. Lecture question 2 LucasHylton has provided the following extract of its non-current assets for 2015: January 1 December 31 Equipment (NBV) 435,000 520,000 During the year, old equipment with a book value of $50,000 was sold for $65,000. New equipment was purchased for $150,000. How much was the depreciation charge for the year? Was there a gain or loss on the sale of the asset?
- 20. Solution to lecturequestion 2 Equipment A/C Bal b/d 435,000 Disposal (NBV) 50,000 Bank/cash (asset purchased) 150,000 Depreciation 15,000 _______ Bal c/d 520,000 585,000 585,000 Bal b/d 520,000
- 21. Solution to lecturequestion 2 (cont’d) Equipment disposal A/C Equipment (NBV) 50,000 Bank/cash (selling price) 65,000 Gain 15,000 ______ 65,000 65,000
- 22. Expenses and revenues EXPENSEA/C Bal b/d (prepaid) X Bal b/d (owing) X Bank/cash (amount paid) X Expense amount** X Bal c/d (owing) X Bal c/d (prepaid) X REVENUE A/C Bal b/d (owing) X Bal b/d (prepaid) X Revenue amount** X Bank/cash (amount received) X Bal c/d (prepaid) X Bal c/d (owing) X
- 23. Lecture question 3 Thefollowing data was obtained from the books of Cliff Huxtable at the end of 2010: Account Opening balance During the year Closing balance ----------------------------------------------------------------------------------------- Wages Owed $12,000 Paid $80,000 Prepaid $15,000 Interest earned Owed $10,000 Received $60,000 Prepaid $18,500 How much is to be shown in the income statement for: (i) wages expense? (ii) interest earned?
- 24. Solution to lecturequestion 3 Wages A/C Bank/cash (amount paid) 80,000 Bal b/d (owing) 12,000 Expense amount 53,000 ______ Bal c/d (prepaid) 15,000 80,000 80,000 Bal b/d 15,000
- 25. Solution to lecturequestion 3 (cont’d) Interest earned A/C Bal b/d (owing) 10,000 Bank/cash (amount received) 60,000 Revenue amount 31,500 Bal c/d (prepaid) 18,500 ______ 60,000 60,000 Bal b/d 18,500
- 26.