What Are Control Accounts? - Discounts - The Operation of Control Accounts - The Purpose of Control Accounts
What Are Control Accounts? - Discounts - The Operation of Control Accounts - The Purpose of Control Accounts
What Are Control Accounts? - Discounts - The Operation of Control Accounts - The Purpose of Control Accounts
balance accounts?
• Discounts
5.1 Control • The operation of
control accounts
accounts
• The purpose of control
accounts
Syllabus learning outcomes
• Understand the purpose of control accounts for accounts
receivable and accounts payable.
• Understand how control accounts relate to the double entry
system.
• Prepare ledger control accounts from given information.
• Perform control account reconciliations for accounts receivable
and accounts payable and identify errors which would be
highlighted by performing them.
• Identify and correct errors in control accounts and ledger
accounts
Syllabus learning outcomes
• Account for discounts allowed and discounts received.
• Account for contras between trade receivables and trade
payables.
Overview
Reconciliations
Control accounts
Required
Record the initial sale.
Lecture example 2 (cont'd)
(b) On 4.1.X7, the customer pays for the goods taking
advantage of the settlement discount. The discount will be
10% of sales value.
Required
Record the full settlement of the amount owed.
Lecture example 2 (cont'd)
Required
(c) What would your answer be to part (b) if the settlement
discount were not taken?
Answer to lecture example 2
Answer to lecture example 2 (cont'd)
Answer to lecture example 2 (cont'd)
Lecture example 3
Ryan Co purchases goods worth $5,000 from Austin Co. Ryan Co will
receive a 5% settlement discount if the goods are paid for within seven
days. Ryan Co has every intention of taking advantage of the settlement
discount.
Required
In the books of Ryan:
(a) Show the initial recording of the purchase.
(b) Record the payment for the goods assuming Ryan
pays within seven days.
(c) Record the payment for the goods if payment is made
after seven days.
Answer to lecture example 3
Answer to lecture example 3 (cont'd)
Answer to lecture example 3 (cont'd)
Lecture example 4
Brick buys goods with a list price of $50,000 from Cement. Brick receives
a trade discount of 12% from Cement and a further discount of 4% if
payment is made within ten days. Sales tax is at 15%.
Required
What amount should Brick show in Cement's payables ledger to
record this purchase?
A $48,576
B $50,336
C $50,600
D $57,500
Required
Reconcile the receivables ledger control account to the receivables
ledger list of balances.
Answer to lecture example 5
Answer to lecture example 5 (cont'd)
Chapter summary 1
1 Recap
The balance of the receivables ledger control account
and the payables ledger control account in the nominal
ledger show the total owed by all credit customers and
due to all credit suppliers.
The purpose of the memorandum ledgers is to show the
balance on each individual customer or supplier account.
Chapter summary 2
2 The flow of information
Given that the nominal ledger and the memorandum
ledgers are updated from the same source
documentation, at any point in time the balance on the
control accounts should equal the total of all the
balances in the memorandum ledgers.
Where the two balances are not the same an error must
have arisen and a reconciliation should be performed to
identify the errors (Section 5).
Chapter summary 3
3 Other entries
If an entity has a customer is also a supplier the two
parties may choose to settle their accounts by making a
contra entry. The contra is always for the lower of the
two balances.
If a customer returns goods having paid for them or
overpays for goods then the entity will owe money back
to that customer and the customer will have a credit
balance on their account.
If a customer is late in settling their account the entity
may decide to charge them interest on the overdue
account. This will increase the balance owed.
Chapter summary 4
4 Discounts
Sometimes a business may offer discounts to attract
custom. There are two types of discounts: trade
discounts and settlement discounts.
Sales and purchases are recorded after trade discounts
but before settlement discounts.
Sales tax is calculated on the amount after all discounts,
regardless of whether the discount is taken or not.
Chapter summary 5
5 Control account reconciliations
As illustrated in the chapter if the balance on the control
account does not agree to the total of all the balances on
the memorandum ledger then an error must have
occurred and a reconciliation will need to be carried out
to identify the differences.