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Control Account Reconciliations


 
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Control Account Reconciliations

Introduction

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.

Preparing a control account reconciliation

The format of a control account reconciliation, in this case for receivables, is as follows:

Receivables ledger control account

$

$

Balance given by the examiner

X

Adjustments for errors

X

Adjustments for errors

X

Revised balance c/f

X

––

––

X

X

Reconciliation of individual receivables balances with control account balance

$

Balance as extracted from list of receivables

X

Adjustments for errors

X/(X)

–––––

Revised total agreeing with balance c/f on control account

X

 

Illustration – Preparing a control account reconciliation

Alston's payables ledger control account is an integral part of the double entry system. Individual ledger account balances are listed and totalled on a monthly basis, and reconciled to the control account balance. Information for the month of March is as follows:

(1)Individual ledger account balances at 31 March have been listed out and totalled $19,766.

(2)The payables ledger control account balance at 31 March is $21,832.

(3)On further examination the following errors are discovered:

  • The total of discount received for the month, amounting to $1,715, has not been entered in the control account but has been entered in the individual ledger accounts.
  • On listing-out, an individual credit balance of $205 has been incorrectly treated as a debit.
  • A petty cash payment to a supplier amounting to $63 has been correctly treated in the control account, but no entry has been made in the supplier's individual ledger account.
  • The purchases day book total for March has been undercast (understated) by $2,000.
  • Contras (set-offs) with the receivables ledger, amounting in total to $2,004, have been correctly treated in the individual ledger accounts but no entry has been made in the control account.

Step 1

The total of discount received in the cash book should have been debited to the payables ledger control account and credited to discount received. Thus, if the posting has not been entered in either double entry account it clearly should be. As this has already been entered into the individual ledger accounts, no adjustment is required to the list of balances.

Step 2

Individual credit balances are extracted from the payables ledger. Here, this error affects the ledger accounts balance. No adjustment is required to the control account, only to the list of balances.

Step 3

The information clearly states that the error has been made in the individual ledger accounts. Amendments should be made to the list of balances. Again, no amendment is required to the control accounts.

Step 4

The total of the purchases day book is posted by debiting purchases and crediting payables ledger control account. If the total is understated, the following bookkeeping entry must be made, posting the $2,000 understatement:

Dr Purchases

Cr Payables ledger control account

As the individual ledger accounts in the payables ledger are posted individually from the purchases day book, the total of the day book being understated will not affect the listing of the balances in the payables ledger.

Step 5

Here it is clear that the error affects the control account, not the payables ledger. Correction should be made by the bookkeeping entry:

Dr Payables ledger control account

Cr Receivables ledger control account

Payables ledger control account

20X9

$

20X9

$

Discount received

1,715

31 Mar
Sales receivable ledger control

2,004

Balance

21,832

Balance c/f

20,113

Purchase

2,000

––––––

––––––

23,832

23,832

Reconciliation of individual balances with control account balance

Cr

$

Balances as extracted

19,766

Credit balance incorrectly treated 2 x $205

410

Petty cash payment

(63)

––––––

Net total agreeing with control account

20,113

 

 

 

Created at 10/25/2012 11:16 AM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 11/1/2016 3:45 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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ACCAPEDIA - Control Account Reconciliations