Session12

Books of Prime Entry and

Control Accounts

FOCUS
This session covers the following content from the ACCA Study Guide.

C. The Use of Double-Entry and Accounting Systems

2. Ledger accounts, books of prime entry and journals
a) Identify the main books of prime entry and understand their nature and
function.
b) Understand and illustrate the uses of journals and the posting of journal
entries into ledger accounts.
c) Identify correct journals from given narrative.

D. Recording Transactions and Events

1. Sales and purchases
c) Understand the general principles of the operation of a sales tax.
d) Calculate sales tax on transactions and record the consequent accounting
entries.
2. Cash
b) Understand the need for a record of petty cash transactions.

E. Preparing a Trial Balance

2. Correction of errors
c) Prepare journal entries to correct errors.
3. Control accounts and reconciliations
a) Understand the purpose of control accounts for accounts receivable and
accounts payable.
b) Understand how control accounts relate to the double-entry system.
c) Prepare ledger control accounts from given information.

Session 12 Guidance
Understand the need for day books (s.1.2) before working through the Illustrations for the sales day
book (Illustrations 1 and 2); purchase day book (Illustrations 3 and 4); cash book (Illustrations 5 and
6); and petty cash book (Illustrations 7 and 8).
Work through the section on journals (s.6), noting the similarity of the double entry presentation
throughout the Study System. Work Illustration 9 and Example 1.
Note how sales tax is recorded (s.7) and work through Illustration 10.

(continued on next page)

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VISUAL OVERVIEW
Objective: To describe the form and content of books of account and to explain how control
accounts and memorandum ledgers relate to the double-entry system.

PURCHASES DAY BOOK CASH BOOK PETTY CASH

• Description • Description • Description
• D/E of Individual • Receipts • Need for a Record
Amounts • Payments • Imprest System
• D/E of Totals • Non-imprest Methods

SALES DAY BOOK JOURNAL

• D/E of Individual • Purpose
Amounts
• Layout
• D/E of Totals
BOOKS OF
• Comparison PRIME ENTRY
• Purpose
• Day Books
SALES TAX
• Ledgers
• General Principles
Double entry
• Operation

General
or vice versa
Memorandum ledger
CONTROL ACCOUNTS

ledger
• Functions
• Importance
• Discrepancies

Session 12 Guidance
Understand the role of control accounts versus memo ledger accounts before attempting any
questions (s.8).
Read the summary in section 9, which is a helpful reference to appreciate the flow of information
in an accounting system and where the ledger entries arise.

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

1 Books of Prime Entry

1.1 Purpose
In previous sessions, individual transactions were recorded
directly into the ledger accounts which comprise the general
ledger (also called nominal ledger).
 In manual systems, this is not feasible because it is too
tedious and time consuming to record "Dr Trade receivables
and Cr Revenue" every time a sale is made.
 Therefore, individual transactions are recorded in books of
prime (i.e. original or first) entry. These books are then
summarised for posting to (i.e. recording in) the general
ledger.

Record and summarise

individual transactions

Record double entries in

individual ledger accounts

*The transfer of information about transactions from documents to

books in accounting systems was introduced in Session 3.

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F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

1.2 Day Books

Day books are basically diaries which:
 record individual transactions in chronological (i.e. date)
order; and
 are totalled periodically (usually monthly) for posting to
general ledger accounts.
The following table describes types of day books.

Title Records

Sales day book Sales made on credit

Sales returns day book Returns of goods (by customer) sold on

credit

Purchases day book Purchases and expenses acquired on

credit

Purchase returns day Returns of goods (to supplier)

book purchased on credit

Cash book Bank account movements (receipts and

payments)

Petty cash book Analyses movements of small cash

amounts

Journal Period-end adjustments (e.g. bad debts)

and corrections, for inclusion in the
double-entry system.

1.3 Ledgers
 Transactions recorded in a day book are totalled on a periodic
basis (e.g. monthly) and posted to general ledger accounts.
 The main ledgers are:
 Sales (receivables) ledger─maintains the personal accounts
of individual customers.
 Purchases (payables) ledger─records the personal accounts
of individual suppliers.
 General (nominal) ledger─records all double entries.
 For each completely separate ledger recording transactions
outside the general ledger, the general ledger must include a
control account for that specific separate ledger (e.g. a sales
ledger control account) to maintain the double entry (in total).
*Do not worry if the
 However, for sub-ledgers (i.e. ledgers maintained within distinction is not yet
the general ledger, as in an integrated computer accounting clear to you; it will
system) a control account within the general ledger is become apparent in
not required, but kept as a separate record (for control the illustrations which
purposes).* follow.

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

2 Sales Day Book

The sales day book is used to record sales made on credit.*

*Although the syllabus does not mention day books, it is necessary

to appreciate how the information they contain is posted to the
ledger accounts. This is fundamental to understanding the role of
control accounts and the types of errors which can be identified in
reconciling them.

2.1 Double Entries of Individual Amounts

Illustration 1 Sales Day Book Individual
Amounts Posted
Ivan makes the following credit sales on 13 January.
Ilencik $500
Jalcova $200
Kolev $100
He posts individual transactions by double entry on a daily basis.

Solution
SALES DAY BOOK GENERAL LEDGER D/E

13 January $ Ilencik
$ $
13.1 Sales 500
Ilencik 500

Jalcova 200
Jolcova
$ $
13.1 Sales 200

Kolev 100 Kolev

800
$ $
13.1 Sales 100

Revenue
$ $
13.1 Receivables 800

When individual amounts are posted to the general ledger, the totals are recorded outside the
double-entry system in a separate memorandum control account.
Memorandum receivables control a/c
$ $
13.1 Total sales 800

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F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

2.2 Double Entries of Totals

In a manual system, it is the total from the sales day book which
is recorded in (posted to) the general ledger─rather than the
individual amounts. (The effect is just the same but it saves *The sales day book
space in the ledger as the number of entries is substantially is just a list and is not
reduced.)* part of the double-
entry bookkeeping
system.
Illustration 2 Sales Day Book

Sales day book

Date Customer Invoice Account Amount
Ref. Ref. $
1.1 B. Andreev 321 A1 100
6.1 K. Bouska 322 B6 75
13.1 M. Chalcak 323 C4 120
19.1 B. Andreev 324 A1 140
26.1 K. Bouska 325 B6 65
31.1 M. Chalcak 326 C4 30
Total for January 530

Required:
Show the double entry at the end of the month.

Solution
D/E At the month end
Dr Total receivables per SDB* $530
Cr Revenue per SDB $530

Note: The full title of the total receivables account is trade accounts
receivable ledger control account (although the words "trade" and/or
"accounts" are frequently dropped).

Receivable ledger control a/c

$ $
January sales 530

Revenue a/c
$ $
January receivables 530

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

 In Illustration 1, the individual accounts were maintained in

the general ledger with the control account being recorded in a
separate memorandum.
 If totals are posted to the general ledger, then the individual
amounts are recorded outside the double-entry system
in a separate memorandum control account as shown in
Illustration 2.*

*Businesses need to keep a record of what individual customers owe

to them. This record takes the form of individual customer accounts,
which are maintained in a separate book─the trade accounts
receivables ledger (also called the sales ledger). For convenience
these are also presented as T accounts. However, when the double
entry has already been dealt with in the general ledger, the entries
in this memorandum ledger do not form part of the double-entry
bookkeeping system.

Illustration 2 Sales Day Book (continued)

Required:
Record the transactions in the sales day book in T account format
as they should appear in the individual customers' accounts in the
receivables ledger.

Solution

RECEIVABLES LEDGER (MEMORANDUM)

B. Andreev A1
$ $
1.1 Inv. 321 100
19.1 Inv. 324 140

K. Bouska B6
$ $
6.1 Inv. 322 75
26.1 Inv. 325 65

M. Chalcak C4
$ $
13.1 Inv. 323 120
31.1 Inv. 326 30

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F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

2.3 Comparison of Methods

Under both approaches, the credit (Cr) is to the Revenue account.
Differences arise as to what account(s) to debit (Dr). The debit is
to either:
 individual (customer) accounts, as shown in Illustration 1; or
 control accounts (in total), as shown in Illustration 2.
2.3.1 Debit to Individual Accounts
This approach is most likely to be used in computerised systems.
The relative advantages of this approach are as follows.
The receivables ledger may be integrated with the general
ledger.
Customer accounts are regarded as a sub-ledger. *The sales day book
may be kept by a
A separate sales day book may be redundant (computer clerk. The clerk or
provides list of individual transactions processed). the credit controller
will update the memo
2.3.2 Debit to Control Accounts ledger daily so that
This approach is most likely to be used in manual systems. The slow payers can be
relative advantages of this approach are as follows. chased up by the
credit controller. The
The general ledger is kept by the accountant. accountant will only
The memo ledger is kept by the credit controller.* require the day book
totals be posted to the
The general ledger does not become too unwieldy. general ledger at each
month end.

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

3 Purchases Day Book

3.1 Description
The purchases day book is the book of prime entry used for
recording purchases (e.g. goods for resale) and expenditure
obtained on credit.
 It is just a list and is not part of the double-entry system.
 It is usually analysed between general ledger account
headings to facilitate summarisation and posting to the
general ledger.

3.2 Double Entries of Individual Accounts

Illustration 3 Purchases Day Book With Individual

Accounts Posted
Ivan makes the following purchases on credit on 13 January.
Futera $80
Gospodinov $200
Hoffmann $120

He posts individual transactions to the double-entry system on a daily basis.

Solution
PURCHASE DAY BOOK GENERAL LEDGER D/E

13 January $ Futera Payable

$ $
Futera 80 13.1 Purchases 80

Gospodinov 200 Gospodinov Payable

$ $
13.1 Purchases 200
Hoffmann 120

400 Hoffmann Payable

$ $
13.1 Purchases 120

Purchases
$ $
13.1 Payables 400

Memorandum Payables Control a/c

$ $
13.1 Total purchases 400

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F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

3.3 Double Entries of Totals

Businesses also need to keep a record of what is owed to
individual suppliers. This record takes the form of individual
suppliers' accounts which are maintained in a separate book—the
memorandum payables ledger (also called trade payables ledger,
purchase ledger or bought ledger).
 As was the case for the receivables ledger, the entries in
the payables ledger do not form part of the double-entry
bookkeeping system.
 The double entry is in the general ledger.

Illustration 4 Purchases Day Book With Totals Posted

Date Supplier Supplier Amount Purchases Telephone Rent Electric Motor

a/c ref $ $ $ $ $ $
1.1 A. Mestel M1 495 495
5.1 Witovska W6 360 360
10.1 Telecom B4 100 100
14.1 Wesson W8 400 400
14.1 Electel S3 90 90
19.1 A. Mestel M1 540 540
23.1 A. Daley D5 210 210
30.1 Witovska W6 295 295
Totals for January 2,490 1,690 100 400 90 210

Required:
(a) Record the January month-end double entry for posting to the general ledger
accounts.
(b) Record the transactions in the individual supplier's account for Witovska in the
payables ledger.

Solution
(a) Month-end posting

D/E At the month end $ $

Dr Purchases 1,690
Dr Telephone 100
Dr Rent 400
Dr Electricity 90
Dr Motor expenses 210
Cr "Total payables" per PDB 2,490

Note: The full term for the total payables account is trade account payables ledger
control account.
(b) Individual supplier's account
MEMORANDUM PAYABLES LEDGER

Witovska W6
$ $
5.1 PDB 360
30.1 PDB 295

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

4 Cash Book

4.1 Description
 The sales and purchases day books only deal with credit
transactions, whereas the cash book captures the movement
in and out of the entity's principal bank (current) account of:
 physical cash (notes and coins);
 cheques; and*
 money transfers.
 Although called cash book, it is in fact a record of bank
account movements.
*A cheque is a money
 Individual transactions are entered daily and the monthly order drawn (i.e.
totals are posted to the general ledger accounts. written out) by a payer
 The cash book has a receipts side and a payments side. It is to settle an amount
due to the payee. The
sometimes kept as two separate books (cash book receipts
payee presents the
and cash book payments), especially if there is a far greater
cheque to his bank
volume of payment transactions than receipts (or vice versa). to have the money
transferred to the
4.2 Cash Book Receipts payee's account.
This book records all cash receipts, which are mostly receipts from
customers for cash and credit sales.

4.2.1. Discounts Allowed

 When a customer is allowed to take a discount for prompt
payment the amount received will be less than the amount on
the sales invoice.*
 As the cashier is the person likely to first recognise that a *Prompt payment
discount has been taken, a discounts allowed column is kept discounts should not
as a MEMORANDUM in the cash book. be confused with trade
 At the end of the period, the double entry for the total of the discounts, which are a
discounts allowed column is: reduction in the listed
price (and hence the
Dr Discounts allowed (expense) $x invoiced amount). (See
Cr Receivables ledger control a/c $x Session 6.)

The discounts must be recorded in the individual customers'

accounts.

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F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

Illustration 5 Cash Book Receipts

Receivables Cash Discounts

Date Narrative Total ledger sales Capital etc allowed
$ $ $ $ $
9.2 B. Andreev 50 50
10.2 Cash 45 45
13.2 K. Bouska 75 75
14.2 Cash 40 40
16.2 Cash 25 25
16.2 M. Chalcak 110 110 10
17.2 B. Andreev 50 50
21.2 K. Bouska 65 65
26.2 Cash 20 20
28.2 Cash 35 35
28.2 M. Chalcak 30 30
545 380 165 10

Required:
(a) Write down the February month-end double entries for posting to the general
ledger accounts.
(b) Using the accounts prepared for "Illustration 2 (continued)," record the transactions
as they would appear in the individual customers' accounts in the receivables ledger.

Solution
(a) Month-end posting
D/E At the month end
Dr Cash $545
Cr Receivables ledger control a/c $380
Cr Cash sales (Revenue) $165
Dr Discounts allowed $10
Cr Receivables ledger control a/c $10
(b) Individual customers' accounts
RECEIVABLES LEDGER (memorandum)

B. Andreev A1
$ $
1.1 Inv. 321 100 9.2 CB receipt 50
19.1 Inv. 324 140 17.2 CB receipt 50

K. Bouska B6
$ $
6.1 Inv. 322 75 13.2 CB receipt 75
26.1 Inv. 325 65 21.2 CB receipt 65

M. Chalcak C4
$ $
13.1 Inv. 323 120 16.2 CB receipt 110
31.1 Inv. 326 30 16.2 CB discount allowed 10
28.2 CB receipt 30

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

4.3 Cash Book Payments

This book records all cash payments, with the payment for goods
and services received from suppliers on credit terms making up
the majority of entries. *If significant,
discounts received may
4.3.1. Discounts Received be treated as income
(like interest received
 When a supplier allows a discount for prompt payment, the on a bank deposit).
amount paid will be less than the amount on the purchase But, in most cases, a
invoice. discount is treated as
 Such discounts received are recorded in MEMORANDUM in the a reduction in expense
cash book. (e.g. netted off against
purchases or discounts
 At the end of the period the double entry for the total of the allowed).
discounts received column is:
Dr Payables ledger control a/c $x
Cr Discounts received a/c* $x
The discounts must also be recorded in the individual
suppliers' accounts.

Illustration 6 Cash Book Payments

Date Narrative Total Payables Cash Rent Motor Discounts

ledger purchases received
$ $ $ $ $ $
1.5 J Hodgeson 10,102 10,102
1.5 M Basman 7,389 7,389
3.5 M Adams 9,444 9,444
5.5 K Arkell 6,123 6,123
" " " " " " "
" " " " " " "
" " " " " " "
May total 161,240 99,150 29,300 11,450 21,340 2,190
Required:
Write down the May month-end double entries for posting to the general ledger
accounts.

Solution

D/E Dr Payables ledger control $99,150

Dr Purchases $29,300
Dr Rent $11,450
Dr Motor expenses $21,340
Cr Cash $161,240
Dr Payables ledger control $2,190
Cr Discounts received $2,190

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F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

5 Petty Cash Book

5.1 Description
The petty cash book records when real cash (currency) is used for
making sundry payments (e.g. postage stamps, coffee, taxi fares)
of a petty nature.*

*Most references to cash accounts, cash books and cash transactions

are potentially misleading in that they usually concern bank transfers
(or cheques or credit card transactions) rather than cash.

 The actual petty cash being used should be kept securely (e.g.
in a safe or cash box).
 The double entry for transferring physical cash from the bank
to the petty cash box is:*
Dr Petty cash a/c $x
Cr Bank a/c $x *The cash payments
book will have a petty
cash column showing
5.2 Need for a Record each transfer─just as it
Cash is easily lost or mislaid. It is controlled by keeping records would show any other
in a petty cash book, which is very similar to a cash book with outgoing of cash.
several columns for analysis of expenses (and possibly sundry
income).
 Every payment out of the cash has to be supported with
a voucher (e.g. a purchase receipt). The voucher will be
authorised by the cashier.
 At the end of each month, the petty cash book is totalled and
the expense totals posted to the general ledger accounts (in
just the same way as the cash book is posted).

5.3 Imprest System

Petty cash may be operated under an imprest system, in which
a fixed sum of money is set aside (e.g. in a cash tin) for petty
expenditure and this sum is replenished at regular intervals.
 At the end of each week, for example, the cash tin is *An imprest is a "loan"
reimbursed for the amount of petty cash expenditure incurred of money to a fund to
during the week.* pay future expenses,
as a control against
Dr Petty cash a/c $x
fraud or theft.
Cr Bank a/c $x

At any point in time: physical cash + petty cash vouchers = imprest

balance.

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

Illustration 7 Imprest System

$
Imprest balance at beginning of week 100
Less: Paid during week
Stationery 9
Tea and coffee 14
Telephone 2
Taxi 4
Auditor’s lunch 39
68
Cash “in hand” in petty cash at end of week 32

At the end of the week, $68 of cash will be drawn from the bank to
reimburse the petty cash tin (i.e. top it up to its original balance of
$100).

5.4 Non-imprest Methods

In a non-imprest system, a fixed amount is issued:
 every month, for example, or
 whenever the petty cash has all been disbursed.

Illustration 8 Non-imprest Method

1 Jan $100 is put into a new petty cash float. During January,
$98 is disbursed.
31 Jan $100 is added to the float. The balance is now $102.
During February, $30 is disbursed.
28 Feb $100 is added to the float. The balance is now $172.

The disadvantages of a non-imprest system are:

As compared with an imprest system, there is no incentive to
ensure all money issued has been documented and supported
by vouchers.
It is much more difficult to reconcile a non-imprest system
because it is not known exactly how much should be in the
float.

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F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

6 The Journal

6.1 Purpose
The journal is used to record transactions which are not recorded
in other day books. It records all non-routine transfers between
ledger accounts and period-end adjustments.*
Journal entries should always be recorded because all *The journal is a book
adjustments must be entered in the general ledger before closing of prime entry. It is
off the books for the year. not part of the D/E
bookkeeping system.
 Examples of entries required:
 depreciation (Session 9);
 asset disposals (Session 9);
 trade-in or part-exchange element of an asset acquired
(Session 9);
 irrecoverable debts (Session 10);
 inventory (Session 11); and In practice journals
 correction of errors (see Session 15).* have limited use, but
the examiner may
require consideration
of any transactions
being recorded by
journal entries rather
*Although accounting for depreciation may be a routine procedure than T accounts.
(e.g. if calculated monthly), it is not captured by any of the other
day books. The same can be said for other period-end adjustments.
Disposals of non-current assets are not routine. The correction of
errors should not be routine.

 Formal recording of such entries ensures that they are

controlled and authorised.
 Because of the nature of the items recorded in the journal, the
entries in it usually will be posted to the general ledger after
a trial balance has been extracted (to confirm that the double
entries from all the day books have been posted correctly).

6.2 Layout
Date Narrative A/c refs Dr Cr
$ $
Account to be debited x
Account to be credited x
Being …*

*Although often obvious from the entries themselves, each posting

is usually explained with a short narrative description. Traditionally,
the narration begins with the word Being and then explains. For
example, "Being the sale of vehicle registration J680 PDQ on 31
October". However, being is often omitted.

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

Illustration 9 Journal

Dr* Cr
$ $ *The debit entry is
(1) Dr Tangible assets – Motor vehicle a/c x always written first.
Cr Receivables ledger control a/c x
Receipt of second-hand car (Reg: A439
STL) in full settlement of the debt of Mr
Romero on liquidation of his business
(2) Dr Depreciation expense a/c x
Cr Accumulated depreciation a/c x
Depreciation charge for the year
(3) Dr Inventory a/c x
Cr Trading a/c x
Transfer of year-end (closing) inventory
(4) Dr Drawings a/c x
Cr Motor vehicle expenses a/c x
Re-allocation of private use motor
expenses

Example 1 Journal Entries

Trial balance at 31 December 2014

Debit Credit
$ $
Shop fittings at cost 2,000
Accumulated depreciation at 1 January 2014 100
Leasehold premises at cost 12,500
Accumulated amortisation at 1 January 2014 625
Inventory at 1 January 2014 26,000
Trade receivables 53,000
Allowance for receivables at 1 January 2014 960
Cash in hand 50
Cash at bank 4,050
Trade payables 65,000
Capital at 1 January 2014 28,115
Drawings to 31 December 2014 2,000
Purchases 102,000
Revenue 129,000
Wages 18,200
Advertising 2,300
Electricity for 15 months 1,500
Bank charges 200
223,800 223,800

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F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

Example 1 Journal Entries (continued)

The following adjustments are to be made:

(1) Depreciation of shop fittings $100
Amortisation of leasehold $625
(2) A debt of $500 is irrecoverable and is to be written off. The receivables allowance is to
be increased to 2% of accounts receivable.
(3) Advertising fees of $200 have been treated incorrectly as wages.
(4) The proprietor has withdrawn goods costing $1,000 for his personal use; these have not
been recorded as drawings.
(5) Inventory at 31 December 2014 is valued at $30,000.
Required:
Prepare journal entries to record adjustments (1) to (5).

Solution
Dr Cr
$ $
(1) Dr

Cr

Being

Dr

Cr

Being

(2) Dr

Cr

Being

Dr

Cr

Being

(3) Dr

Cr

Being

(4) Dr

Cr

Being

(5) Dr

Cr

Being

Working: Receivables allowance

$

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

7 Sales Tax

7.1 General Principles

Many governments apply a sales tax to the purchase and sale of
goods (and services) by entities such as value added tax (VAT).
A business liable for this tax must record its effect in the
double-entry bookkeeping system and make a settlement with
the government agency of the net sales tax figure (based on
purchases and sales).

7.2 Operation

Illustration 10 Sales Tax

On January 1, Oleg, a trader, purchases a flat-packed table-tennis

table from Minah for $300 net (i.e. exclusive of sales tax).
On 31 January, Oleg sells the constructed table-tennis table to
Petrov for $575 gross (i.e. inclusive of sales tax).
Sales tax is 15%.

Solution*
Purchase day book (PDB)
Date Supplier Invoice (gross) Purchases (net) Sales tax
$ $ $
1.1 Minah 345 300 45
Sales day book (SDB)
Date Supplier Invoice (gross) Sales (net) Sales tax
$ $ $
31.1 Petrov 575 500 75

GENERAL LEDGER

Sales tax T7
$ $
1.1 PDB 45 31.1 SDB 75
31.1 Balance c/d 30
75 75

1. Oleg has paid $45 sales tax on goods purchased and received $75 sales tax on goods sold.
(The difference of $30 is the tax on the value added.)
2. Only the end-user (Petrov) suffers the sales tax. Oleg acts as a collecting agent for the
government agency and is liable to pay $30. This will be shown as a current liability in the
statement of financial position, if unpaid.
3. If by the end of a period when the tax has to be settled, Oleg has paid more sales tax (on
purchases and expenses) than he has recouped (on sales), then he can reclaim the shortfall
(as he is not the end-user).

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Ali Niaz - [email protected]

F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

8 Control Accounts

8.1 Function
All transactions with customers and suppliers are recorded in two
places:
1. In total in the control accounts.
2. Individually in the receivables and payables ledgers.
 Remember, if the double entry (D/E) uses totals, the control
accounts are in the general ledger and the sub-ledgers are
kept as memoranda.
 Alternatively, if D/E is based on individual transactions, the
control accounts are kept as memoranda.

8.2 Importance
At the end of each month, a list of balances will be extracted from
the individual ledgers and agreed to the balance on the control If (but only if) all
account. postings are correct,
In practice this will usually be done before a trial balance is the sum of the
extracted from the general ledger (otherwise the trial balance individual balances
in the memorandum
may not balance due to errors in postings from the day books).
sub-ledger must
equal the balance on
8.3 Discrepancies the control account.
Suppose individual postings to a memorandum receivables ledger
are done daily, weekly or monthly by the receivables ledger
clerk. The ledger clerk will use a notation to indicate where the
postings have been made (e.g. recording the account references
in a column of the sales day book). With so many transactions to
post, some omissions, duplications or other posting errors (e.g.
transpositions) may arise.
 If there are errors in the control accounts maintained in the
general ledger, the trial balance may not balance.
 If there are errors in the individual accounts, then (for
example), suppliers may be paid wrong amounts.

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

Illustration 11 Control Accounts

Start with balancing the individual customers' accounts from Illustration 5:

B. Andreev A1
$ $
1.1 Inv. 321 100 9.2 CB receipt 50
19.1 Inv. 324 140 17.2 CB receipt 50
Balance c/d 140
240 240
Balance b/d 140

The balances on the accounts of K. Bouska and M. Chalak are nil.

List of balances
$
B. Andreev 140
K. Bouska —
M. Chalcak —
140

Next, the totals from Illustrations 2 and 5 are used to write up the
Receivables ledger control account:

Receivables ledger control a/c

$ $
Jan. Sales 530 Feb. Cash book receipts 380
Feb. Discounts allowed 10
Balance c/d 140
530 530
Balance b/d 140

The balance of $140 in the control account agrees to the $140 total from
the list of balances. If a difference was found, then the balances must be
reconciled (see Session 13).

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Ali Niaz - [email protected]

F3 Financial Accounting Session 12 • Books of Prime Entry and Control Accounts

9 Summary

9.1 Manual System

Transactions

Books of
prime entry
SDB Cash PDB
Book

General
NOT DOUBLE ENTRY

ledger a/cs

The
Journal

(book of prime entry)

© 2014 DeVry/Becker Educational Development Corp. All rights reserved. 12-21

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Session 12 • Books of Prime Entry and Control Accounts F3 Financial Accounting

9.2 Computerised System (typical)

The ledgers and accounts maintained in a computerised
accounting system are essentially the same as in a manual
system.
 Some (or all) of the day books themselves are likely to be
part of the system. For example, sales invoices raised each
day from a note of goods despatched are automatically
listed (providing the day book) with postings being done
automatically (perhaps daily) to the general ledger.
 As previously mentioned, receivables and payables ledgers are
likely to be sub-ledgers within the computerised system, so
the control accounts will be kept in memorandum.

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Ali Niaz - [email protected]

Session 12

Summary

 Books of prime entry record individual transactions which are summarised into totals for
posting to ledger accounts.
 Typically in manual systems:
• totals are posted by double entry to general ledger accounts; and
• individual amounts are recorded in separate ledgers which are kept in memorandum (i.e.
not part of the double entry).
 There are three main ledgers: general, receivables and payables.
 Typically in computerised systems where sub-ledgers eliminate the need for separate
ledgers, the memorandum postings of totals are made to control accounts (i.e. not part of
the double entry).
 The sales day book records sales made on credit.
 The purchases day book records purchases (e.g. capital items and goods for resale) and
services obtained on credit.
 The cash book shows the movement in and out of the entity's principal bank account.
 Settlement discounts allowed (to a customer) reduce the amount receivable and are an
expense.
 Settlement discounts received (from a supplier) reduce the amount payable and are a
reduction in expense (or sundry income).
 An imprest system is a means of controlling petty cash expenditure; the amount of the
imprest is fixed.
 The journal is a book of prime entry which documents all accounting entries which are not
recorded in other books of prime entry.
 Sales tax collected by a business, which is owed to the government, is not sales revenue.

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Session 12 Quiz
Estimated time: 15 minutes

1. List FIVE day books. (1.2)

2. Explain the role of a receivables ledger control account. (1.3)
3. Give TWO other names for the "trade payables ledger". (3.3)
4. State what is meant by cash in the context of the cash book. (4.1)
5. State the D/E for total discounts allowed. (4.2)
6. True or false? A non-imprest petty cash system does not require vouchers to be
authorised. (5.4)
7. Give FIVE types of transactions or events which would be recorded in the journal. (6.1)
8. True or false? The journal is a day book and not part of the double-entry bookkeeping
system. (1.2 and 6.1)
9. Explain the importance of a control a/c. (8.2)

Study Question Bank

Estimated time: 105 minutes

Priority Estimated Time Completed

Q52 A Smit 60 minutes

Q55 Rubens 5 minutes

Q56 Zone 15 minutes

Q61 MCQs 25 minutes

Additional
Q53 Rebecca
Q54 Wooden Tops
Q57 Hastings
Q58 Zenkerova
Q59 Rankine
Q60 Henry Williams

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EXAMPLE SOLUTION

Solution 1—Journal Entries

Dr Cr
$ $

(1) Dr Depreciation — Fittings a/c 100

Cr Accumulated depreciation — Fittings a/c 100

Being Depreciation charge for year

Dr Amortisation — Leasehold a/c 625

Cr Accumulated amortisation a/c 625

Being Amortisation charge for year

(2) Dr Irrecoverable debt expense a/c 500

Cr Trade receivables a/c 500

Being Write-off of irrecoverable debt

Dr Irrecoverable debt expense a/c (W) 90

Cr Allowance for receivables a/c 90

Being Increase in general allowance

(3) Dr Advertising a/c 200

Cr Wages a/c 200

Being Re-allocation of advertising fees

(4) Dr Drawings a/c 1,000

Cr Purchases a/c 1,000

Being Goods withdrawn for own use

(5) Dr Inventory a/c 30,000

Cr Cost of sales (Trading I&E a/c) 30,000

Being Closing inventory

Working: Receivables allowance

$
Allowance at new 2% rate 1,050
Existing allowance 960
Adjustment to allowance required 90

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