Debtors and Creditors Control Accounts


Previous lesson: Posting Journals
Next lesson: Trial Balance





As previously mentioned, we not only have the general ledger, but also two other ledgers:

- The Debtors Ledger
- The Creditors Ledger.



We also learned that all individual debtor T-accounts go in the debtors ledger and all individual creditor T-accounts go in the creditors ledger.

Debtors ledger


No debtor or creditor T-accounts go in the general ledger, right? Only in the debtor and creditor ledgers, right?

Well... no, not exactly. The general ledger also contains two special accounts relating to the above, called control accounts.

There is a control account for debtors and a control account for creditors:

debtors control account, creditors control account




The reason they are called control accounts is because one uses them to ensure there are no errors or mistakes in our records relating to debtors and creditors. Thus one gets more control. I will show you exactly how this is done shortly.

Note that the entries in the control accounts of "total sales", "total purchases" as well as "bank" come from the relevant accounting journals. For example, the "total sales" figure of $16,300 in the debtors control account above comes from the total in the sales journal below (which shows sales on credit).

Sales journal

Also, the "bank" figure of $7,400 in the debtors control account would come from the total of the "debtors" column in the cash receipts journal:

Cash receipts journal

Similarly, the "total purchases" figure of $3,900 in the creditors control account could be traced back to the purchases journal (which shows purchases on credit). And the "bank" figure of $6,000 in this same account could be traced back to the cash payments journal (showing all payments of cash).




So how do these control accounts ensure that there are no errors or mistakes?

Let’s take debtors. For debtors, we compare the closing balance of the debtors control account in the general ledger to the total of all the closing balances of all the individual debtor accounts in the debtors ledger. As you can see above, the debtors control account has a closing balance of $10,700. The debtor T-accounts come to the same figure ($8,000 + $1,400 + $1,300 = $10,700).

If the debtor T-accounts came to a different figure – let's say $11,000 – we would know for sure that there was some error, either in one of the individual debtor accounts in the debtors ledger or in the debtors control account (general ledger).

Traditionally bookkeepers or other accounts personnel perform a reconciliation on a regular basis between the control accounts (general ledger) and the total of the debtors or creditors ledger. (The word reconciliation comes from reconcile, which means to make two amounts agree in value.) Accounts personnel may even produce a debtors or creditors reconciliation statement, which is a report showing the discrepancies between the control account (general ledger) and the totals of the individual T-accounts in the debtors or creditors ledger.




Previous lesson: Posting Journals
Next lesson: Trial Balance



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