The SLCA is the book where all the customer accounts are held. This means it is full of trade receivables making the account an ASSET account.
The balance b/f is the total of all the customer accounts.
Entries made in this account that INCREASE the amount customers owe is on the DEBIT side.
Entries made that DECREASE the amount customers owe go on the CREDIT side.
With Contra entries, They go on the credit side as they now don't owe us.
The PLCA is the book where all the supplier accounts are held. This means it is full of trade payables making the account a LIABILITY account.
The balance b/f is the total of all the supplier accounts.
Entries made in this account that INCREASE the amount we owe goes ont the CREDIT side.
Entries made that DECREASE the amount we owe go on the DEBIT SIDE.
With Contra entries, they go on the debit side as we now don't owe them.
Control accounts only deal with credit transactions. The SLCA deals with credit sales not cash sales and the PLCA deals with credit purchases not cash purachases.
When the SLCA is finished and balanced with a balance brought forward, that balance should equal the balances in the sales ledger.
Reconcialation of SLCA = customer accounts added up e.g.
Sales Ledger balances:
Retail Group LTD 1250
SuperShops LTD 2300
Total 3550 This should be the bal b/f in the SLCA
The balance of the SLCA verifies the accuracy of the sales ledger.
The balance on the control account should be the same as the total of the individual accounts in the SL. If these do not agree it indicates an error in either the sales ledger or the control account.
A contra entrey occurs when a business is both a customer and a supplier and both accounts have balances on them. If a business both owes and is owed money, then these entries can be off- set against eachother.
A customer owes you £100 but you owe them £1000. A contra entry can be posted so one of the balances is cleared.
To do this the lower blance is chosen. In this case the £100.
You would post a contra entry on the Credit side of the customer account in the SL to clear the balance. In the PL, the contra entry would go on the debit side with a new bal c/f of £900 to balance the account as it already has a credit of £1000. The new bal b/f would be £900 meaning you now owe them £100 less.
Reconciliation of the SL and PL
The reconcilation of the purchases and sales ledger cannot show all types of errors for example
- Errors of omission - missing out a whole transaction
- Error of comission - posting to the wrong person's account
- Error of original entry - wrong amount originally entered
- Compensating errors - 2 errors that cance eachother out.
Benefits of preparing control accounts
- If the control account and the total of the ledger don't agree you know there must be an error therefore control accounts help identify errors.
- Controls accounts can be prepared by a person who is different to the person who prepares individual ledger accounts. This separation of duties can help prevent fraud.
- The trade receivables and trade payables figures for the blanace sheet can be found quickly and easily.