MGT101 - Financial Accounting - I - Lecture Handout 26

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CONTROL ACCOUNTS (Continued)

A number of books are opened in connection with control accounts to reduce the volume of general ledger. These books are called ‘Subsidiary Books’.

It is important to note that only credit sales/purchases become part of control accounts. Cash sales/purchases are not included in the control accounts.

Subsidiary Books for Sales/Debtors

Three subsidiary books are maintained in case of sales / debtors.

Sales Journal / Sales Day Book – individual invoice wise sales are recorded in this Journal. This book serves as source for all the recording of Credit sales.
Sales Return / Return Inward Journal if volume of returns is also high then, these are also recorded in a separate register.
Debtors Ledger – this ledger maintains record of individual debtor.

The information flows to the debtors control account in the general ledger as follows:

Opening balance of debtors	List of debtors balances drawn up to the end of previous period. This also confirms with the aggregate balance of the debtors ledger.
Credit Sales	Individual credit sale is recorded in the sales journal. Periodical total of this journal is posted into the debtors control account.
Sales Return	In case, the transaction volume of sales return is high, then these are recorded in the sales return journal. The total is posted in the debtors control account periodically.
Cheques / Cash Received	List of receipts is extracted from cash and bank book. Or a separate column is maintained in cash and bank books for this purpose.
Closing Balance	This is the balancing figure. It can also be checked with the total of balances in debtors’ ledger.

Example # 1

Let’s suppose that the sales journal provides the following record for the month of March, 2002

Sales Journal
Date	Invoice #	Name / Debtor	Amount
Mar 01, 2002	01	A	10,000
Mar 15, 2002	02	B	15,000
Mar 31, 2002	03	C	20,000
		Total	45,000

The above mentioned record will be posted in the personal ledger accounts of A, B & C (Debtors ledger account) in the following manner:

A’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
01/03			10,000		Balance b/d		10,000
	Total		10,000		Total		10,000

B’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
15/03			15,000		Balance b/d		15,000
	Total		15,000		Total		15,000

C’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
31/03			20,000		Balance b/d		20,000
	Total		20,000		Total		20,000

In the general ledger, the amount of total sales will be booked in the following manner:

Sales Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
	Balance b/d		45,000	31/03	Total sales for the month of march, 2002		45,000
	Total		45,000		Total		45,000

Now if we total the balance of three accounts of the debtors’ ledger on Mar 31, 2002:

10,000 B 15,000 C 20,000 Total 45,000

It will be the same as the balance in the debtors control account of the general ledger.

Recording of Sales Return

Let’s say that sales return journal for the month of March, 2002 give the following record:

Sales Journal
Date	Name / Debtor	Amount
Jan 15, 20--	A	1,000
Jan 20, 20--	B	2,000
Jan 25, 20--	C	3,000
	Total	6,000

The above mentioned record will be posted in the personal ledger accounts of A, B & C (Debtors ledger account) in the following manner:

A’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
01/03			10,000	15/03	Balance b/d		10,000 9,000
	Total		10,000		Total		10,000

B’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
15/03			15,000	20/03	Balance b/d		2,000 13,000
	Total		15,000		Total		15,000

C’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
31/03			20,000	25/03	Balance b/d		3,000 17,000
	Total		20,000		Total		20,000

Sales Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
	Total sales return for the month of march, 2002 Balance b/d		6,000 39,000	31/03	Total sales for the month of march, 2002		45,000
	Total		45,000		Total		45,000

Debtors Control Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
31/03	Total sales for the month of march, 2002		45,000	31/03	Total sales return for the month of march, 2002 Balance b/d		6,000 39,000
	Total		45,000		Total		45,000

Again if we total the balance of three accounts of the debtors’ ledger on Mar 31, 2002:

A 9,000 B 13,000 C 17,000 Total 39,000

It will be the same as the balance in the debtors control account of the general ledger.

Receipts From Debtors

Here, we need a total figure of receipts from debtors. Therefore, when control accounts are used, we maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank books are not used. On the receipts side of the cash and bank book, a column is added in which receipts from debtors are separately noted. This type of cash / bank book is also called multi column cash / bank book.

A sample of the receipt side of cash / bank book is given hereunder:

Cash / Bank Book
Receipt Side
Date	No	Narration / Particulars	Ledger Code	Receipt Amount	Receipt from Debtors
				10,000
				500
		Received from A		5,000	5,000
				300
		Received from B		2,500	2,500
		Received from A		1,000	1,000
		Received from C		1,500	1,500
				950
				1,000
		Total		22,750	9,000

Subsidiary Books for Purchases/Creditors

Recording of creditors is similar to debtors. The subsidiary books maintained in case of purchases / creditors are:

Purchase Journal / Purchase Day Book – individual purchases are recorded in this Journal.
Purchase Return / Return outward Journal – If the volume of returns is also high, then these are also recorded in a separate register.
Creditors Ledger – this ledger maintains record of individual creditors.

The information flows to the creditor control account in the general ledger as follows:

Opening balance of creditors	List of creditor balances drawn up to the end of previous period. This also confirms with the aggregate balance of the creditors ledger.
Credit Purchases	Individual credit purchase is recorded in the purchase journal. Total of this journal is posted into the creditors control account periodically.
Purchase Return	In case the transaction volume of purchase return is high, then, these are recorded in the purchase return journal. Periodically, the total is posted in the creditors control a/c.
Cheques / Cash Paid	List of payments is extracted from cash and bank book. Or a separate column is maintained in cash and bank books for this purpose.
Closing Balance	This is the balancing figure. It can also be checked with the total of balances in creditors’ ledger.

Example # 2

Let’s consider the following data for the month of March, 2002:

Purchase Journal
Date	Name / Debtor	Amount
Mar 01, 2002	X	5,000
Mar 10, 2002	Y	10,000
Mar 25, 2002	Z	15,000
	Total	30,000

The above mentioned record will be posted in the personal ledger accounts of X, Y & Z (Creditors ledger account) in the following manner:

X’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
	Balance b/d		5,000	01/03			5,000
	Total		5,000		Total		5,000

Y’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
	Balance b/d		10,000	10/03	Total sales for the month of march, 2002		10,000
	Total		10,000		Total		10,000

Z’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
	Balance b/d		15,000	25/03			15,000
	Total		15,000		Total		15,000

In the general ledger, the amount of total purchases will be booked in the following manner:

Purchases Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
31/03	Total purchases for the month of march, 2002		30,000	31/03	Balance b/d		30,000
	Total		30,000		Total		30,000

Creditors Control Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
31/03	Balance b/d		30,000	31/03	Total purchases for the month of march, 2002		30,000
	Total		30,000		Total		30,000

Now, if we total the balance of three accounts of the creditor’s ledger on Mar 31, 2002:
X

5,000 Y 10,000 Z 15,000 Total 30,000

It will be the same as the balance in the creditors control account of the general ledger.

Recording of Purchase Return

Let’s say that the purchase return journal show the following picture for the month of March, 2002:

Date	Name / Debtor	Amount
Mar 01, 2002	X	500
Mar 10, 2002	Y	1,000
Mar 25, 2002	Z	1,500
	Total	3,000

The above mentioned record will be posted in the personal ledger accounts of X, Y & Z (Creditors ledger account) in the following manner:

X’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
01/03	Balance b/d		500 4,500	01/03			5,000
	Total		5,000		Total		5,000

Y’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
10/03	Balance b/d		500 4,500	01/03			5,000
	Total		5,000		Total		5,000

Z’s Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
25/03	Balance b/d		1,500 13,500	25/03			15,000
	Total		15,000		Total		15,000

In the general ledger, the amount of total purchases will be booked in the following manner:

Purchases Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
31/03	Total purchases for the month of march, 2002		30,000	31/03	Total purchases return for the month of march, 2002 Balance b/d		3,000 27,000
	Total		30,000		Total		30,000

Creditors Control Account Account code----
Date	Particulars	Code #	Amount Rs. (Dr.)	Date	Particulars	Code #	Amount Rs. (Cr.)
31/03	Total purchases return for the month of march, 2002 Balance b/d		3,000 27,000	31/03	Total purchases for the month of march, 2002		30,000
	Total		30,000		Total		30,000

Now, if we total the balance of three accounts of the creditor’s ledger on Mar 31, 2002:

4,500 Y 4,500 Z 4,500 Total 4,500

It will be the same as the balance in the creditors control account of the general ledger.

Payment to Creditors

Here, we need a total figure of payment to creditors. Therefore, when control accounts are used, we maintain cash and bank books with separate pages for receipts and payments i.e. two column cash/bank books are not used. On the payment side of the cash and bank book, a column is added in which payments to creditors are separately noted. This type of cash / bank book is also called multi column cash / bank book.

A sample of the payment side of cash / bank book is given hereunder:

Cash / Bank Book
Payment Side
Date	No	Narration / Particulars	Ledger Code	Payment Amount	Payment to Creditors
				500
				5,000
		Received from A		2,500	2,500
				3,000
		Received from B		1,500	1,500
				1,000
		Received from C		1,500	1,500
				1,950
				1,500
		Total		18,450	5,500