11/01/2016
NOTES ON RECEIVABLES AND PAYABLES CONTROL ACCOUNTS FOR SC STUDENTS
Control Accounts
Trade Receivables Control Account and Trade Payables Control Account
We have seen Types of Ledger that there are three types of ledger: Sales Ledger, Purchases Ledger and General Ledger.
While the accuracy of the General Ledger is assessed by preparing the Trial Balance, the accuracy of the Sales Ledger and the Purchases Ledger are checked by preparing control accounts.
Remember that the Sales Ledger (Receivables Ledger) is the book in which accounts of credit customers are kept. Amount owed by customers is called trade receivables. To control the Sales Ledger, the Trade Receivables Control Account is prepared. It is often called Receivables Control Account.
Purchases Ledger (Payables Ledger) is the book in which accounts of credit suppliers are kept. Amount owed to suppliers is called trade payables. To control the Purchases Ledger, the Trade Payables Control Account is prepared. It is often called Payables Control Account.
Purposes of Control Accounts
Primary Purpose
The primary purpose of control accounts is to act as independent check on the accuracy of the Sales Ledger and the Purchases Ledger. This is done by using totals from subsidiary books in control accounts to calculate trade receivables and trade payables. These figures are then compared with figures obtained from the list of balances from Sales Ledger and Purchases Ledger.
Secondary Purposes
Other purposes of control accounts are as follows:
- They are used to calculate the total of trade receivables and trade payables quickly, especially when the trial balance has not yet been prepared.
- They are used to detect errors.
- They are used to deter fraud.
- They may also be used to check the work of inexperienced staff members like the receivables ledger and payables ledger clerk.
Sources of information for Control Accounts
As mentioned earlier, control accounts act as independent check on the accuracy of the Sales Ledger and the Purchases Ledger. As such, the source of information to prepare control accounts should be different from that used to prepare accounts in the sales ledger and purchase ledger. The latter are prepared from individual entries of subsidiary books and are also corresponding entries for entries on the opposite side (debit or credit) of the General Ledger.
