Main entries in control accounts
The two main entries in the RLCA are credit sales and cash received from credit customers.
The double-entry for credit sales is: -
The double-entry for cash received from customers is: -
The two main entries in the PLCA are credit purchases and cash paid to credit suppliers.
The double-entry for credit purchases is: -
The double-entry for cash paid to suppliers is: -
There are other entries which will be included in the control accounts. It is important to note that any transaction recorded in the RLCA or the PLCA is also reflected in the memorandum ledgers.
Other entries in control accounts
This is where an amount of money is owed to a supplier, who is also a customer who owes money, i.e., a payable who is also a receivable.
Instead of paying the full amount to the creditor, who then pays the full amount of their debt to you, the two amounts owed and owing are offset against each other and only the difference is settled in cash. This must be reflected in the individual accounts in the sales and purchase ledgers and in the control accounts in the nominal ledger.
The double entry for a contra is: -
The contra value is of the maximum common amount. A contra always has the effect of reducing both receivables and payables.
Returns, Credit Notes and Refunds
When a customer returns goods which have already been paid, he may either be given a credit note or refunded for the value of these returned goods.
When a credit note is given, the double-entry is: -
Dr Returns In (sales returns)
When the customer is refunded: -
The same applies when a customer over-pays an invoice.
Interest charged on overdue accounts
An entity may decide to charge interest if a customer does not pay within the specified credit period.
The double-entry for interest charged on these overdue accounts is: -
Cr Interest Receivable (Income (I/S))
There are two types of discounts
Trade discount is a reduction in the list price of an article, given by a wholesaler or manufacturer to a retailer. It is often given in return for bulk purchase orders.
Cash/settlement discount is a reduction in the amount payable for the purchase of goods or services in return for payment in cash, or within an agreed period.
Trade discounts received are deducted from the cost of purchases. Trade discounts allowed are deducted from sales. Therefore, sales are recorded net of trade discounts but inclusive of settlement discounts.
Purchases are also recorded net of trade discounts but inclusive of settlement discounts. Therefore, trade discounts never appear in the financial statements.
Sales Tax and Discounts
Sales tax is calculated on the amount after all discounts, regardless of whether the discount is taken or not.
Control account balances
Very often, PLCA’s have a credit balance since payables are a liability. However, there may be situations when there will be a debit balance on a PLCA
Returning goods which have been paid for and receiving a ‘credit’ (to us, a debit) on our account
Payments in advance
Credit balance on a RLCA
There may be situations when there will be a credit balance on a RLCA
Returned goods credit to account
Payments in advance