Purchases Ledger Control Account is a summary account which checks the arithmetical accuracy of the Purchases Ledger. It enables us to see at a glance whether the general ledger balance for the purchases ledger agrees with the total of all the individual trade payable accounts held within the purchases ledger.
This Control Account typically looks like a "T-Account" or a replica of an Individual Trade Payable ( Creditor) account, but instead of containing transactions related to one trade payable (creditor) it contains transactions related to all the trade payables (all the creditors) in the business. As this control account contains the summarized information of all the trade payables accounts in the purchases ledger, it is also called as "Total Trade Payables Account"("Total Creditors Account").
Check out the format of this control account below and try to perceive the similarities with individual trade payables account (creditors account).
Purchases ledger control account is generally prepared at the end of the financial year or "whenever" it is required to check the arithmetical accuracy of the individual trade payable accounts.
As we discussed earlier, this control account is prepared as an independent check on the arithmetical accuracy of the purchases ledger (creditors ledger). So, we should not obtain the information required to prepare this control account from the purchases ledger (creditors ledger), instead all the information required should be obtained from books of original entry or prime entry.
Once the control account is prepared using the above format with the information obtained from various books of prime entry/original entry, the total of balances on the individual trade paybales accounts (creditors accounts) in the purchases ledger should match with the closing balances on the Purchases Ledger Control account.
If the closing balances of purchases ledger control account and the total of balances on the individual trade payables accounts in the purchases ledger agrees, we can presume that there are no errors in the purchases ledger or fraud occurred in the business. If the balances differ, it indicate that there are errors in the individual trade payables accounts in the purchases ledger or in the control account. So to locate these errors, accountants need to check each and every trade payables account in the purchases ledger carefully until the error is found or the fraud is detected.
The following table provides the details of source of information for the purchases ledger control account items.
The following items are often seen in the control account questions. As these times are closely related to the "purchases and trade payables", students often confuse and record them in the P L Control Account. But these items should not be recorded in the control accounts. Lets check these items below.
1. Cash Purchases:
Cash purchases are recorded cash book but not in the purchases ledger. So cash purchases should not be entered in the P L Control account which checks the arithmetical accuracy of the purchases ledger.
Trade payables (creditors) accounts generally shows credit balance in the business books. This balance represents money owed to the trade payables (creditors) by the business. However some times trade payable (creditor) account may show a debit balance. It indicates trade payable owes money to the business. It may happen due to one of the following reasons: