Control Accounts (Cambridge (CIE) IGCSE Accounting): Flashcards
Exam code: 0452 & 0985
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Define a control account.
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Cards in this collection (25)
Define a control account.
A control account is a summary of all the balances and transactions for either trade receivables or trade payables. A sales ledger control account covers the credit customers, and a purchases ledger control account covers the credit suppliers.
Where do the figures for a control account come from, and why does that matter?
From the books of prime entry, never from the ledger accounts. Using an independent source is what allows errors in the ledger to show up when the two are compared.
True or False?
A control account that agrees with the ledger total proves the ledger is free of errors.
False.
It proves there are no arithmetic errors, but not that every entry is right. Errors of commission, omission, original entry and compensating errors all survive the check.
How does a control account reveal that an error has been made?
Its closing balance is compared with the total of the individual ledger accounts. If the two figures do not agree, there is an error somewhere in that ledger.
Complete the sentence about control accounts and fraud:
Control accounts help prevent fraud because
people prepare the control accounts and the ledger accounts.The completed sentence is:
Control accounts help prevent fraud because different people prepare the control accounts and the ledger accounts.
Give two advantages of using control accounts.
Control accounts:
help locate errors in the sales or purchases ledger
give the total for trade receivables or trade payables, so the statement of financial position can be prepared quickly
help reduce and prevent fraud
prove the arithmetical accuracy of the ledger
What is a contra entry between the sales and purchases ledgers?
It is where the same person is both a credit customer and a credit supplier, and the two balances are offset against each other. No money changes hands; the smaller balance is simply cancelled against the larger.
How is a contra entry between the sales and purchases ledgers recorded?
Debit the trade payables account and credit the trade receivables account. The general journal is the book of prime entry, and the entry carries a narrative explaining the offset.
Aadam owes Brie $500 and Brie owes Aadam $300. What happens if they agree a contra entry?
Each balance is reduced by $300, the smaller of the two. Aadam still owes Brie $200, and Brie now owes Aadam nothing.
Which books of prime entry supply the figures for a sales ledger control account?
The sales journal and sales returns journal, the cash book, and the general journal. Between them they give credit sales, returns, money received, discounts allowed, dishonoured cheques, interest, contras and irrecoverable debts.
True or False?
Cash sales appear in the sales ledger control account.
False.
Cash sales never enter the sales ledger at all, because no customer is left owing anything. Only credit sales, and money received against invoices, appear.
Name three items on the debit side of a sales ledger control account.
The debit side carries:
the opening balance for customers who owe money
sales, credit sales only
interest charged on overdue accounts
bank, for dishonoured cheques and refunds paid to customers
Complete the sentence about balances in a control account:
Debit and credit balances are totalled
, so a control account can have two opening and two closing balances.The completed sentence is:
Debit and credit balances are totalled separately, so a control account can have two opening and two closing balances.
Name three items on the credit side of a sales ledger control account.
The credit side carries:
sales returns
bank and cash received from credit customers
discount allowed
irrecoverable debts written off, and contra entries
Why might a sales ledger control account have a credit balance?
Because the business owes a customer money. That happens when a customer pays in advance, overpays, or is owed a refund for goods already paid for and returned.
Where do irrecoverable debts written off appear in a sales ledger control account, and why?
They appear on the credit side. Writing the debt off means the customer no longer owes the money, so the total owed to the business falls.
Where does a dishonoured cheque appear in a sales ledger control account, and why?
It appears on the debit side, entered as bank. The payment has been reversed, so the customer owes the money once again.
Complete the sentence about preparing a purchases ledger control account:
The total value of credit purchases is taken from the purchases
, not from the ledger accounts.The completed sentence is:
The total value of credit purchases is taken from the purchases journal, not from the ledger accounts.
Name three items on the credit side of a purchases ledger control account.
The credit side carries:
the opening balance for money owed to credit suppliers
purchases, credit purchases only
interest charged by suppliers on overdue accounts
bank, for refunds received from suppliers
True or False?
A contra entry appears on the debit side of the purchases ledger control account.
True.
A contra debits trade payables and credits trade receivables, so it reduces what the business owes. It therefore sits on the debit side here, and on the credit side of the sales ledger control account.
Name three items on the debit side of a purchases ledger control account.
The debit side carries:
purchases returns
bank and cash paid to credit suppliers
discount received
contra entries
Why might a purchases ledger control account have a debit balance?
Because a supplier owes the business money. That happens when the business pays in advance, overpays, or is owed a refund for goods already paid for and returned.
Why are cash purchases left out of a purchases ledger control account?
They never enter the purchases ledger at all. Paying at the time of purchase means no supplier is ever owed anything, so there is no balance to control.
Where does interest charged by a credit supplier appear, and why?
Interest charged by a supplier appears on the credit side. It increases what the business owes, just as a further credit purchase would.
A purchases ledger control account opens with a credit balance of $17 150 and a debit balance of $1350. What does that mean?
The business owes $17 150 to most of its suppliers, while other suppliers owe it $1350. The two are shown separately rather than netted off against each other.
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