CARA'S TIPSControl accounts, single entry, mark-up and margin
JAMBWAECNECO
What the syllabus asks
JAMB: Topic 8 Control accounts (purchases and sales ledger control, uses, contra items); Topic 9 Incomplete records and single entry (statement of affairs, conversion to double entry, missing figures, mark-up and margin)
WAEC: Control accounts and reconciliation with ledger balances; single entry and incomplete records; mark-up and margin
NECO: Control accounts and reconciliation with ledger balances; single entry and incomplete records; mark-up and margin
What you will learn
- Explain the purposes of control accounts.
- Prepare sales and purchases ledger control accounts, including contras and credit balances.
- Reconcile a control account with the list of ledger balances.
- Find profit by the statement of affairs method.
- Reconstruct missing figures from incomplete records.
- Use mark-up and margin to find missing figures and inventory losses.
Key points
- Control accounts summarise ledgers using totals from books of original entry.
- Sales ledger control: Dr sales, dishonoured cheques; Cr receipts, discounts, returns, bad debts, contras.
- Purchases ledger control is the mirror image.
- Exclude cash sales/purchases, trade discount and allowances.
- Contra: Dr purchases ledger control, Cr sales ledger control.
- Reconcile control with list: totals errors affect control; posting errors affect list.
- Statement of affairs: capital = assets − liabilities.
- Profit = closing capital − opening capital + drawings − capital introduced.
- Missing credit sales and purchases come from total receivables and payables accounts.
- Mark-up on cost; margin on selling price; margin is the smaller.
Start here: Why control accounts are needed
A wholesaler in Kaduna’s Central Market may sell on credit to 300 retailers and buy from 60 suppliers. Each has a personal account in the sales (receivables) ledger or the purchases (payables) ledger. If the trial balance fails to agree, searching through 360 accounts for the error could take days.
A control account solves this. It is a summary account kept in the general ledger (or as a memorandum) that records the totals of all entries made in a subsidiary ledger. Because each total comes from a book of original entry (sales day book, cash book, returns day books, journal), the balance of the control account should equal the sum of the individual balances in that ledger.
Purposes
- Arithmetical check: each ledger can be proved separately, making it “self-balancing”.
- Locating errors: if the list of balances does not match the control, the error lies in that ledger.
- Prevention of fraud: the control account is usually kept by a different officer (often the accountant), so a ledger clerk cannot easily hide a theft by altering customers’ accounts. This is division of duties.
- Quick totals: total receivables and payables are known at once for final accounts, credit control and bank loan applications.
- Missing figures: in incomplete records (8.7 onward), a total receivables account reveals credit sales.
Control accounts are found in every computerised package. In Sage, QuickBooks or a Nigerian ERP, the “Accounts receivable” account in the general ledger is a control account supported by a customer sub-ledger; the software keeps them in agreement automatically.
Note that control accounts do not reveal every error. A sale posted to the wrong customer’s account leaves both the control and the list totals unchanged, so it is found only when that customer queries the statement.
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Practice questions
- ₦245 000
- ₦275 000
- ₦290 000
- ₦65 000
Show answer
A: ₦245 000
₦180 000 + ₦960 000 − ₦850 000 − ₦15 000 − ₦9 000 − ₦21 000 = ₦245 000.
- total creditors account
- suspense account
- nominal ledger
- total debtors (receivables) account
Show answer
D: total debtors (receivables) account
It summarises all customers’ accounts.
- Opening credit balance
- Interest charged by suppliers
- Payments to suppliers
- Credit purchases
Show answer
C: Payments to suppliers
Payments reduce payables.
- Interest charged to customers
- Returns inwards
- Credit sales
- Dishonoured cheques
Show answer
B: Returns inwards
Returns reduce receivables.
- locate errors in a particular ledger
- calculate depreciation
- prepare manufacturing accounts
- replace the trial balance
Show answer
A: locate errors in a particular ledger
A mismatch with the list of balances points to that ledger.
Key words
- Control account
- A summary account whose balance equals the total of the individual accounts in a subsidiary ledger.
- Sales ledger control
- Total receivables account; also debtors control.
- Purchases ledger control
- Total payables account; also creditors control.
- Contra entry (set-off)
- Offsetting an amount owed by a customer against an amount owed to them as a supplier.
- Self-balancing ledger
- A ledger with its own control account so that it can be checked on its own.
- Single entry
- A system in which transactions are recorded only once, usually in a cash book and personal accounts.
- Incomplete records
- Accounting records that do not follow full double entry.
- Statement of affairs
- A statement of assets and liabilities at a date used to find capital.
- Mark-up
- Gross profit expressed as a percentage of cost.
- Margin
- Gross profit expressed as a percentage of selling price.
- Conversion to double entry
- Reconstructing full accounts from incomplete records.
- Memorandum account
- An account kept for information, outside the double entry.
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