## **Learning Outcomes**

After reading this article, you will be able to explain the purpose of the receivables control account, prepare reconciliations between the control account and individual receivables ledger balances, identify common causes of discrepancies, and describe how to deal with differences. You will gain skills required to monitor customer balances and maintain reliable accounting records for the ACCA FA1 exam.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand the principles of maintaining and checking control accounts for trade receivables. In particular, focus your revision on:

- The role and structure of the receivables control account
- Preparing a reconciliation between the receivables control account and the list of individual receivables ledger balances
- Identifying causes of differences between the control account and ledger balances
- The procedure for investigating and correcting errors or omissions
- The importance of reconciling regularly to ensure accuracy and detect fraud or mistakes

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. What is the main reason for regularly reconciling the receivables control account to the list of balances in the receivables ledger?
2. Name two typical causes of discrepancies between the receivables control account and the individual ledger balances.
3. True or false? A missing sales invoice affects both the control account and the total of the receivables ledger.
4. What steps should you take if the balance on the control account does not match the total of the receivables ledger?

## **Introduction**

Businesses maintain records of amounts owed by their credit customers using both a receivables control account (in the general ledger) and a list of individual customer balances (in the receivables ledger). The control account provides an overview, while the ledger details each specific customer balance. Regularly comparing these ensures that the total owed by customers is accurate and supports detection of errors, fraud, or omissions. This process—reconciling the control account to the list of balances—is a critical internal control.

> **Key Term: receivables control account**
> A general ledger account that summarizes the total outstanding amounts due from all credit customers at a point in time.
>
> **Key Term: receivables ledger**
> A subsidiary ledger containing separate accounts for each credit customer, showing what each owes individually.

## Why Reconcile the Control Account to the List of Balances?

Reconciliation ensures that the total shown by the control account equals the sum of the individual customer balances. A mismatch indicates errors, omissions, or even possible fraud. Regular reconciliation helps maintain accurate records and supports management’s oversight of the amounts owed by customers.

### Uses of the Receivables Control Account

- Quickly determines the total owed by customers for financial statements.
- Reveals errors when it does not agree with the ledger total.
- Monitors the effectiveness of receivables management by providing up-to-date figures.

## Common Causes of Discrepancies

Differences between the receivables control account and the total of the receivables ledger may arise for several reasons:

- Transactions entered in the control account but omitted from individual ledger accounts, or vice versa.
- Errors in posting, such as incorrect amounts or misallocated entries.
- Transactions posted to the wrong customer account.
- Items such as dishonoured cheques, contra entries, or irrecoverable debts not correctly coded or posted.
- Timing differences, for example if journals or adjustments are not entered in both records.

> **Key Term: reconciliation**
> The process of comparing two sets of records and identifying and explaining any differences.

## The Reconciliation Process: Step-by-Step

Reconciling means identifying and explaining the difference between the control account balance and the ledger total. The main steps are:

1. **List the closing balance on the receivables control account.**
2. **Add up the balances from all individual customer accounts in the receivables ledger.**
3. **Compare the totals.** If they do not agree, investigate differences.
4. **Check for:**
   - Transactions missing from one record but present in the other (e.g., a cash receipt recorded in the control account but not in the customer account)
   - Posting mistakes (wrong amounts or accounts)
   - Balancing errors, such as duplicated or omitted balances in the ledger listing
5. **Adjust for known errors or omissions.** Prepare correction journals as needed.

> **Key Term: list of balances**
> A schedule showing the closing balances for all individual customer accounts in the receivables ledger.

## When to Perform a Reconciliation

Businesses typically reconcile at least monthly, at the end of the accounting period, or after posting all relevant transactions and adjustments. This keeps records up-to-date and reduces the risk that errors will go unnoticed.

### **Worked Example 1.1**

A business's receivables control account at the end of April shows a balance of \$28,150. The total of the balances extracted from the individual receivables ledger accounts is \$27,900. Upon review, you find that a \$250 receipt was entered in the control account only, and a \$500 sales invoice was recorded in a customer account but omitted from the control account.

**Question:** Prepare a reconciliation to match the control account to the ledger total.

> **Answer:**
> Start with the control account balance: \$28,150  
> Deduct the cash receipt recorded in the control account only: -\$250  
> Add the sales invoice in the ledger only: +\$500  
> Calculated ledger total: \$28,400
> Since the list of balances totals \$27,900, there is still a remaining unexplained difference of \$500 (\$28,400 – \$27,900). Review for further errors.

### **Worked Example 1.2**

The ledger listing of customer balances is \$52,400, but the control account is \$51,900. Investigation reveals an irrecoverable debt of \$500 has been written off in the control account but not in the customer account.

**Question:** How would you reconcile these figures?

> **Answer:**
> Ledger total: \$52,400  
> Less irrecoverable debt missed in the ledger: -\$500  
> Reconciled balance: \$51,900  
> This matches the control account. Adjust the individual account.

## Dealing with Discrepancies

When you identify a difference, you must:

- Trace each reconciling item to its source (e.g., cash book, sales day book).
- Record any adjustments required in either the control account or the individual customer account.
- Document the final reconciliation for audit and management review.

### **Exam Warning**

> Be careful: Posting an entry (such as a cash receipt) to the wrong customer account will not affect the control account total but will distort individual balances. Always check the accounts to locate such errors.

### **Revision Tip**

> Regular reconciliation reduces the risk of undetected errors and makes corrections easier.

## **Summary**

Reconciling the receivables control account to the ledger list is essential to ensure the accuracy of reported customer balances. Discrepancies must be promptly investigated and corrected, using clear documentation and journal entries where necessary.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define and explain the role of the receivables control account
- Prepare a reconciliation between the control account and the list of ledger balances
- Identify typical errors and causes of discrepancies
- Describe procedures for correcting errors and updating records
- Explain the importance of regular reconciliation as a control

## **Key Terms and Concepts**

- receivables control account
- receivables ledger
- reconciliation
- list of balances

Receivables control account - Reconciling control to list of balances