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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:

A

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:

X

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

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