Content Standard 5.3

Control Accounts

Akaun Kawalan

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Explanation

A Control Account (Akaun Kawalan) is a summary account that gathers the total of all transactions belonging to a group of similar individual accounts. In Chapter 5 Ledger, there are two control accounts you need to know: the Receivables Control Account (Akaun Kawalan Belum Terima), which controls all debtor accounts in the Sales Ledger, and the Payables Control Account (Akaun Kawalan Belum Bayar), which controls all creditor accounts in the Purchases Ledger. The main purpose of a control account is to serve as an arithmetic accuracy check: the balance of the control account should equal the total of all individual account balances in the related subsidiary ledger. If the two totals do not agree, there is an error that must be traced and corrected.

The information used to prepare control accounts is taken from the Books of Prime Entry (Buku Catatan Pertama), not from each individual account one at a time. The monthly totals of each book of prime entry are transferred to the control account. For example, the total of the Sales Journal becomes credit sales, the total of the Purchases Journal becomes credit purchases, the total of the Sales Returns Journal becomes returns inwards, and the total of the Purchases Returns Journal becomes returns outwards. The Cash Book supplies figures for receipts, payments, discount allowed and discount received, while bad debts are taken from the General Journal. This matters because it makes the control account a summary that is independent of the individual ledger entries.

In the Receivables Control Account, the debit side records the opening balance of debtors (balance b/d) and credit sales for the period. The credit side records cash or cheques received from debtors, discount allowed, returns inwards (sales returns) and bad debts written off. The balance is carried down (balance c/d) on the credit side and brought down again as the opening balance of the next period on the debit side. This closing balance represents the total amount still to be received from all debtors on that date, and it is reported as a current asset in the Statement of Financial Position.

In the Payables Control Account, the credit side records the opening balance of creditors (balance b/d) and credit purchases for the period. The debit side records cash or cheques paid to creditors, discount received and returns outwards (purchases returns). The balance is carried down (balance c/d) on the debit side and brought down again on the credit side. This closing balance represents the total amount still owed to all creditors, and it is reported as a current liability in the Statement of Financial Position. Note that the structure of the Payables Control Account is the reverse of the Receivables Control Account because it is a liability account.

To confirm accuracy, the control account balance is cross-checked against the list of individual account balances from the subsidiary ledger. For example, the balance of the Receivables Control Account must equal the sum of all debtor account balances in the Sales Ledger. If they do not agree, the student must trace errors such as a wrongly posted figure, an omitted transaction, or an addition error. The advantages of a control account are that it allows errors to be located quickly, it helps prepare financial statements without waiting for every individual account to be balanced, and it provides a form of internal control because the person keeping the individual ledgers is usually different from the person preparing the control account.

Worked examples

Receivables Control Account (Maju Jaya Enterprise)

On 1 June, the debtors balance (balance b/d) was RM15,000. During June the following occurred: credit sales RM42,000, cash/cheques received from debtors RM38,000, discount allowed RM900, returns inwards RM1,200 and bad debts written off RM500.

Debit side: Balance b/d RM15,000 and Sales RM42,000, giving a total of RM57,000.

Credit side: Bank/Cash RM38,000, Discount allowed RM900, Returns inwards RM1,200, Bad debts RM500 and Balance c/d RM16,400.

Balance c/d is calculated as: RM57,000 - RM38,000 - RM900 - RM1,200 - RM500 = RM16,400. This RM16,400 balance is reported as a current asset (debtors) in the Statement of Financial Position on 30 June.

Payables Control Account (Sinar Grocery Store)

On 1 July, the creditors balance (balance b/d) was RM10,000. During July: credit purchases RM28,000, cash/cheques paid to creditors RM25,000, discount received RM600 and returns outwards RM800.

Credit side: Balance b/d RM10,000 and Purchases RM28,000, giving a total of RM38,000.

Debit side: Bank/Cash RM25,000, Discount received RM600, Returns outwards RM800 and Balance c/d RM11,600.

Balance c/d is calculated as: RM38,000 - RM25,000 - RM600 - RM800 = RM11,600. This RM11,600 balance is reported as a current liability (creditors) in the Statement of Financial Position on 31 July.

Double entry of the source transactions

To show where the control account figures come from, consider the credit sales of RM42,000 above. The original double entry is: Debit Debtors Account RM42,000; Credit Sales Account RM42,000. This figure comes from the Sales Journal.

For bad debts of RM500: Debit Bad Debts Account RM500; Credit Debtors Account RM500. This is taken from the General Journal.

For discount received of RM600 in the creditors example: Debit Creditors Account RM600; Credit Discount Received Account RM600. The monthly total of each of these items is summarised in the control account.

Practice

State the source (Book of Prime Entry) for each of the following items recorded in a control account: (i) credit sales, (ii) credit purchases, (iii) returns inwards, (iv) discount allowed, (v) bad debts.

Answer: (i) Credit sales: Sales Journal. (ii) Credit purchases: Purchases Journal. (iii) Returns inwards: Sales Returns Journal. (iv) Discount allowed: Cash Book (discount column). (v) Bad debts: General Journal. The monthly total of each book of prime entry is transferred to the related control account.

Prepare the Receivables Control Account of Damai Enterprise for August. Debtors balance b/d RM20,000; credit sales RM55,000; cash received from debtors RM48,000; discount allowed RM1,500; returns inwards RM2,000; bad debts RM800. Calculate the balance c/d.

Answer: Debit side: Balance b/d RM20,000 + Sales RM55,000 = RM75,000. Credit side: Bank/Cash RM48,000 + Discount allowed RM1,500 + Returns inwards RM2,000 + Bad debts RM800 + Balance c/d. Balance c/d = RM75,000 - RM48,000 - RM1,500 - RM2,000 - RM800 = RM22,700. Balance c/d RM22,700 (debtors, a current asset).

Prepare the Payables Control Account of Bestari Company for September. Creditors balance b/d RM14,000; credit purchases RM36,000; payment to creditors RM30,000; discount received RM700; returns outwards RM1,300. Calculate the balance c/d.

Answer: Credit side: Balance b/d RM14,000 + Purchases RM36,000 = RM50,000. Debit side: Bank/Cash RM30,000 + Discount received RM700 + Returns outwards RM1,300 + Balance c/d. Balance c/d = RM50,000 - RM30,000 - RM700 - RM1,300 = RM18,000. Balance c/d RM18,000 (creditors, a current liability).

Explain two purposes of preparing control accounts and describe how the control account balance is checked.

Answer: The first purpose is to act as an arithmetic accuracy check, so that errors in the subsidiary ledger can be located quickly. The second purpose is to allow financial statements to be prepared earlier because the debtors and creditors balances can be taken directly from the control accounts without balancing every individual account; it also provides internal control. The control account balance is checked by comparing it with the total of the list of individual account balances in the subsidiary ledger (Sales Ledger or Purchases Ledger). If the two totals agree, this indicates no arithmetic error; if they differ, the error must be traced.

Exam tips

Memorise the structure of each account: the Receivables Control Account starts with balance b/d on the debit side (asset), while the Payables Control Account starts with balance b/d on the credit side (liability). Putting the opening balance on the wrong side makes the whole answer wrong.
Remember the items that reduce debtors on the credit side of the Receivables Control Account: receipts, discount allowed, returns inwards and bad debts. Bad debts are often forgotten, so do not leave them out.
Always state the Book of Prime Entry source if the question asks, since this is a specific Learning Standard (e.g. credit sales from the Sales Journal, bad debts from the General Journal).
Check your answer by calculating the balance c/d using a formula first before writing the full account, so that both sides balance and you avoid arithmetic mistakes.

Key terms

Receivables Control Account (Akaun Kawalan Belum Terima): A summary account controlling all debtor accounts in the Sales Ledger; its balance is total debtors (current asset).
Payables Control Account (Akaun Kawalan Belum Bayar): A summary account controlling all creditor accounts in the Purchases Ledger; its balance is total creditors (current liability).
Books of Prime Entry (Buku Catatan Pertama): The books of original record (Sales Journal, Purchases Journal, Returns Journals, Cash Book, General Journal) that provide the source figures for control accounts.
Bad Debts (Hutang Lapuk): An uncollectible debtor amount written off; recorded on the credit side of the Receivables Control Account and taken from the General Journal.

Source: DSKP KSSM Prinsip Perakaunan Tingkatan 4

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