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FUNDAMENTALS OF FINANCIAL ACCOUNTING
CONTROLLING THE BOOKKEEPING SYSTEM
9.6.4 The control account and allowance for receivables
An allowance for receivables is made when it is felt that a proportion of receivables may not
honour their debts in full, but the identity of the individual receivables is not known. Refer
back to Chapter 5 to refresh your memory on the bookkeeping treatment of these provisions.
The important point to remember is that no entries are made in the receivables ledger
accounts for allowances for receivables, and therefore no entry is made in the sales ledger
control account either.
9.6.5 Advantages of control accounts
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They check the accuracy of the ledger accounts that they control.
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They enable ‘ segregation of duties ’ by allocating the job of maintaining the sales/
purchase ledger to one person, and the job of maintaining the control account to
another person, thereby reducing the risk of fraud.
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They enable the trial balance to be prepared more speedily, as the receivables and paya-
bles total can be extracted from the control accounts rather than waiting for the indi-
vidual accounts to be balanced and totalled.
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They enable speedier identifi cation of reasons why the trial balance may not balance – if
the control account disagrees with its ledger balances, it prompts investigation into the
entries in that area.
9.6.6 Reconciling control accounts and ledger accounts
The control account must be checked against the total of balances in the relevant ledger,
on a regular basis, and any difference between the two must be investigated. Assuming
that the control account has been prepared using totals from the books of prime entry, it
is usual to ‘ work backwards ’ through the tasks that have been carried out, before checking
individual entries. The sequence for a sales ledger control account could be as follows:
(i) Rework the balance on the control account; check that bad debts have been entered,
contras have been properly recorded, and that the account does not contain the allow-
ance for receivables.
(ii) Check that all totals have been correctly transferred from the books of prime entry
to the control account (look especially for discounts allowed, which may have been
omitted).
(iii) Recalculate the list of receivable balances (look especially for credit balances listed as
debits, check contras and bad debts written off).
(iv) Recalculate the columns in the books of prime entry (look at the sequence of invoice
numbers to see if one is missing; look also in the cash book for refunds made to
receivables).
(v) If the balances are still incorrect, it will be necessary to start looking at entries in
detail:
– cross-check the net, sales tax and totals for each invoice/credit note in the daybooks;
– cross-check the net, discount and total for each receipt in the cash book;
– cross-check the calculation of the balances on the individual receivable accounts;
– cross-check the entry of each invoice, credit note, receipt and so on in the receivable
accounts.