## **Learning Outcomes**

After reading this article, you will be able to explain the structure and function of receivables and payables control accounts, describe how to reconcile control accounts with ledger listings, identify common causes of discrepancies, and outline the necessary steps to resolve errors. You will practice typical exam scenarios related to control account reconciliations.

## **ACCA Maintaining Financial Records (FA2) Syllabus**

For ACCA Maintaining Financial Records (FA2), you are required to understand why control accounts are used, how to reconcile them with subsidiary ledger listings, and how to identify and correct errors found during this process. This article addresses:

- The function and content of receivables and payables control accounts
- The purpose of subsidiary (memorandum) ledgers and their connection to control accounts
- Methods of reconciling control accounts to individual ledger account balances
- Identification of common errors and omissions causing discrepancies
- The correction process of errors in control or subsidiary accounts
- The reporting of reconciled figures in the financial statements

## **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. Which document compares the total of receivables in the control account with the aggregate of individual customer accounts?
2. A supplier balance in the control account does not match the payables ledger listing. Name two possible causes for this.
3. True or false? Discounts allowed must be recorded in both the control account and each relevant individual customer account for accurate reconciliation.
4. Briefly describe the steps you would take if the receivables control account and the ledger listing have different balances.

## **Introduction**

Control accounts are essential for summarising large numbers of individual transactions recorded with customers and suppliers. Receivables and payables control accounts provide a single figure for each type of balance in the general ledger, while subsidiary ledger listings maintain details for each individual account.

Reconciling control accounts with their subsidiary ledgers ensures accuracy and reveals errors or omissions. This is a common task in bookkeeping and a regular source of exam questions, especially when discrepancies arise that require correction. Knowing how to carry out this reconciliation process and resolve differences is critical for reliable financial reporting.

> **Key Term: control account**
> An account in the general ledger that summarises the transactions and balances of all related subsidiary ledger accounts, such as receivables or payables.
>
> **Key Term: subsidiary ledger (memorandum ledger)**
> A record containing detailed individual accounts that support the balance shown in a control account.

## **Receivables and Payables Control Accounts: Overview**

### Control Accounts in the General Ledger

Receivables (sales ledger control) and payables (purchase ledger control) accounts collect the totals of all credit transactions with customers or suppliers. Each account provides a single figure to represent all such balances, simplifying the trial balance and financial statements.

Individual customer or supplier balances are recorded separately in subsidiary ledgers, not the general ledger.

### The Need for Reconciliation

Regularly reconciling the control account with the subsidiary ledger listing is necessary to verify that all individual accounts total correctly and to detect errors or omissions. This process increases the reliability of financial statements and is an important internal control activity.

### Common Causes of Differences

When balances do not match, discrepancies typically arise from:

- Transactions entered in the control account but omitted from the individual ledger (or vice versa)
- Double posting or incorrect posting of an amount
- Errors in adding or subtracting balances in the listing
- Posting a transaction to the wrong customer or supplier account
- Misclassified accounts (e.g., personal expenses posted as trade receivables)

Discrepancy investigations focus on these types of issues.

## **The Reconciliation Process**

Reconciling the control account with the ledger listing involves the following steps:

1. Obtain the closing balance of the control account from the general ledger.
2. Calculate the total of balances on the individual accounts in the subsidiary ledger (ledger listing).
3. Compare the two totals. If they disagree, check for timing differences (such as unposted transactions) or errors.
4. Investigate and identify the source(s) of all discrepancies using cross-referencing, checking postings, and tracing entries.
5. Make correcting journal entries where necessary in the control account or individual ledger.

### Typical Errors and Corrections

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

### **Worked Example 1.1**

A business has a trade receivables control account balance of \$56,700. The total of individual customer account balances in the receivables ledger is \$56,350. You find that receipt of \$350 from a customer was correctly recorded in the control account, but omitted from that customer's individual account.

**What correction is needed to reconcile the difference?**

> **Answer:**
> The receipt of \$350 must be credited to the relevant customer’s account in the subsidiary ledger, reducing the ledger listing total to match the control account. No change is required in the control account.

### **Worked Example 1.2**

In a supplier reconciliation, the payables control account balance is \$42,000, but the total of the individual supplier accounts is \$42,800. You identify that a purchase invoice of \$800 was posted twice in the subsidiary ledger for one supplier, but only once in the control account.

**What action is required?**

> **Answer:**
> Remove the duplicate \$800 entry from the supplier’s individual account in the subsidiary ledger. This brings the listing total down by \$800, now agreeing with the control account.

## **Correction of Errors: Journal Entries**

When a transaction is discovered in the wrong place, correcting entries must be made. For errors in the control account only, adjust the control account. For errors in individual ledgers, adjust the affected subsidiary account.

> **Key Term: correcting journal entry**
> An entry made in the accounting records to rectify errors found during reconciliation.

## **Presentation of Reconciled Figures**

After reconciliation and correction, the balance in the control account represents the authoritative amount to be included in the trial balance and ultimately the financial statements.

## **Exam Warning**

> In the exam, always check whether a transaction has been posted in both the control account and the subsidiary ledger. Posting in only one place is a frequent cause of minor unbalanced differences.

## **Revision Tip**

> When performing a control account reconciliation, make a working list of all known reconciling items as you find them, ticking off each as the difference is resolved.

## **Summary**

Reconciling receivables and payables control accounts with their respective subsidiary ledger listings is a key procedure to ensure completeness and accuracy in the accounting system.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define control accounts and subsidiary ledgers
- Explain the rationale for reconciling control to ledger listings
- List common sources of discrepancies between control accounts and ledger listings
- Describe the systematic process for handling differences and making corrections
- State the importance of using the reconciled control account balance in financial reporting

## **Key Terms and Concepts**

- control account
- subsidiary ledger (memorandum ledger)
- reconciliation
- correcting journal entry

Receivables and payables control accounts - Reconciling control to ledger listings