PowerPoint Presentation

A training video by Luke Frost. ÄåååC cc. Control Account v. Suspense Account.

A control account is an account in the nominal ledger in which a record is kept of the total value of a number of similar but individual items. Suspense accounts, as well as being used to correct some errors, are also opened when it is not known immediately where to post an amount. When the mystery is solved, the suspense account is closed and the amount correctly posted using a journal entry..

CONTROL ACCOUNT • A control account keeps a total record of a number of individual items. It is an impersonal account which is part of the double entry system. Control accounts are used chiefly for trade receivables and payables. • - A receivables control account is an account in which records are kept of transactions involving all receivables in total. The balance on the receivables control account at any time will be the total amount due to the business at that time from its receivables. • - A payables control account is an account in which records are kept of transactions involving all payables in total, and the balance on this account at any time will be the total amount owed by the business at that time to its payables..

PURPOSE OF CONTROL ACCOUNTS The reasons for having control accounts are as follows: (a) They provide a check on the accuracy of entries made in the personal accounts in the receivables ledger and payables ledger. It is very easy to make a mistake in posting entries, because there might be hundreds of entries to make. Figures can get transposed. Some entries might be omitted altogether, so that an invoice or a payment transaction does not appear in a personal account as it should. By comparing (i) and (ii) below, it is possible to identify that fact that errors have been made. • (i) The total balance on the receivables control account with the total of individual balances on the personal accounts in the receivables ledger. • (ii) The total balance on the payables control account with the total of individual balances on the personal accounts in the payables ledger ..

(b) The control accounts also assist in the location of errors, where postings to the control accounts are made daily or weekly, or even monthly. If a clerk fails to record an invoice or a payment in a personal account, or makes a transposition error, it would be a formidable task to locate the error or errors at the end of a year, say, given the number of transactions. By using the control account, a comparison with the individual balances in the receivables or payables ledger can be made for every week or day of the month, and the error found much more quickly than if control accounts did not exist..

(c) Where there is a separation of clerical (bookkeeping) duties, the control account provides an internal check. The person posting entries to the control accounts will act as a check on a different person(s) whose job it is to post entries to the receivables and payables ledger accounts. (d) To provide total receivables and payables balances more quickly for producing a trial balance or statement of financial position. A single balance on a control account is obviously extracted more simply and quickly than many individual balances in the receivables or payables ledger. This means also that the number of accounts in the double entry bookkeeping system can be kept down to a manageable size, since the personal accounts are memorandum accounts only..

Receivabks ledFr control accoutt Balance bff Credit sales (SOB) Bank (CB) dishonoured cheques Bank (CB) refunds of credit Interest charged Balance cH Balance bff Payabks control accou•'t Balance bff Bank (CB) Purchases retums (PROB) Discounts received Contra Balance c." Balance bff Abbreviation key: SOB sales day PDB Purchases day SRDB Sales retums book PRDB Purchases retums day book CB Cash x x x x x x x x x x x x x x x x Balance bff Sales returns (SRDB) Bank (CB) Irrecoverable debts (Journal) Discounts allowed Balance cd Balance bff Balance bff Credit purchases (PDB) Bank (CB) refunds of debit balances Balance cd Balance bff x x x x x x x x x x x x x x x.

Control Account Reconciliations • The reconciliation is a working to ensure that the entries in the sales and purchase ledgers (the memorandums, or list of individual balances) agree with the entries in the control accounts. The totals in each should be exactly the same. If not it indicates an error in either the memorandum account or the control account. All discrepancies should be investigated and corrected.

Control Account Reconciliations • Preparing a control account reconciliation • The format of a control account reconciliation, in this case for receivables, is as follows:.

SUSPENSE ACCOUNTS • A suspense account is an account in which debits or credits are held temporarily until sufficient information is available for them to be posted to the correct accounts. • There are two main reasons why suspense accounts may be created: • - On the extraction of a trial balance the debits are not equal to the credits and the difference is put to a suspense account. • - When a bookkeeper performing double entry is not sure where to post one side of an entry he may debit or credit a suspense account and leave the entry there until its ultimate destination is clarified..

SUSPENSE ACCOUNTS It must be stressed that a suspense account can only be temporary. Postings to a suspense account are only made when the bookkeeper doesn't know yet what to do, or when an error has occurred. Mysteries must be solved, and errors must be corrected. Under no circumstances should there still be suspense account when it comes to preparing the statement of financial position of a business. The suspense account must be cleared and all the correcting entries made before the final accounts are drawn up..