Control Account - Creditors
Recording Supplier Purchases in the Control Account
A business will buy goods & services on credit from wholesalers and so on
![cc1](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc1.jpg)
This means the business buys now but pays later.
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When this happens, a value of goods or services comes from a supplier, and those goods or services will become an expense of the business.
![cc3](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc3.jpg)
The business was able to buy the goods or services on credit because the supplier was prepared to extend credit to it.
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For this reason, the supplier is called a creditor.
![cc5](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc5.jpg)
To record the transaction, you credit the supplier’s account to show a value of goods or services came from the supplier.
![cc6](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc6.jpg)
Then you debit the expense or purchases account to show where the goods or services were used.
![cc7](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc7.jpg)
A business may buy goods & services from several suppliers, each day.
![cc8](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc8.jpg)
If these individual supplier accounts were contained in the general ledger it would be impossible to manage the business effectively.
![cc9](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc9.jpg)
To find out how much money the business owed suppliers, you would need to add together all the balances of all the individual supplier accounts.
![cc10](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc10.jpg)
This may be all right if the business only has a few supplier accounts, but a business may have many suppliers making this task extremely difficult.
![cc12](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc12.jpg)
To overcome this problem, once you’ve updated the individual supplier accounts. you also update an account known as a purchases ledger control account or creditors control account.
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When you update the control account, you update it with a summary of the supplier transactions.
![cc13](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc13.jpg)
In this example, it’s a total of the day’s purchases shown in the purchases ledger.
![cc14](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc14.jpg)
Doing this gives you more control over your records.
![cc15](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc15.jpg)
Now, to find out how much the business owes to all of its suppliers all you need to do is refer to the control account’s balance.
![cc16](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc16.jpg)
The control account is the account contained in the general ledger, and it is the control account’s balance that is shown on this diagram
![cc17](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc17.jpg)
For their part, the individual customer accounts form something known as a subsidiary ledger or a sales ledger
![cc18](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc18.jpg)
Each account within this ledger is referred to as a sub account
![cc19](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc19.jpg)
Recording Supplier Payments in the Control Account
The control account contains a summary of all supplier transactions, not just purchases
![cc20](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc20.jpg)
For example, the business will make payments to suppliers.
![cc21](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc21.jpg)
Here, money comes from the business’s bank account and the business sends this money to the suppler
![cc22](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc22.jpg)
To record the transaction, you credit the cash account to show that money came from the bank.
![cc23](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc23.jpg)
Then you debit the supplier’s account to show the money went to the supplier.
![cd25](https://seeaccountingnow.online/wp-content/uploads/2022/04/cd25.jpg)
Once updated, you update the control account with a summary of the day’s transactions.
![cc25](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc25.jpg)
After this, you can balance the control account to find out how much the business still owes to all suppliers.
![cc26](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc26.jpg)
Recording Discount Received in the Control Account
Typically, suppliers will offer a discount to encourage early payment.
![cc27](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc27.jpg)
If the business takes up the offer, it will send a payment – less the discount.
![cc28](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc28.jpg)
To record the transaction, you credit the cash account with the actual amount paid to show money came from the bank.
![cc29](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc29.jpg)
Then you debit the supplier’s to show the money went to the supplier.
![cc33](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc33.jpg)
Part of the payment’s total value came from the discount, so you credit the discount received account to show that value came from it.
![cc32](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc32.jpg)
Then you debit the supplier’s account to show you have assigned the discount’s value to it.
![cc33](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc33.jpg)
When added together, the payment and the discount should equal the amount owed
![cc34](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc34.jpg)
You need to record the discounted payment in the control, as well, beginning with the actual payment.
![cc35](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc35.jpg)
Then you record the discount received.
![cc36](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc36.jpg)
When balanced, the control account will show how much the business now owes to suppliers.
![cc37](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc37.jpg)
Recording
Returns in the Control Account
The business may also return goods to a supplier.
![cc38](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc38.jpg)
Here, you use the returns outwards or purchases return account.
![cc39](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc39.jpg)
This account is a contra expense account.
![cc40](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc40.jpg)
Unlike other expense accounts, it balances on the credit side.
![cc41](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc41.jpg)
This means it reduces the balance of expense accounts.
![cc42](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc42.jpg)
To record the return, you credit the returns account to show a value of goods came from the business.
![cc43](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc43.jpg)
Then you debit the supplier’s account to show that the goods were returned to the supplier.
![cc44](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc44.jpg)
You need to record this in the control account, as well
![cc45](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc45.jpg)
This will reduce the amount owed by the business to suppliers.
![cc46](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc46.jpg)
Recording
Dishonored Checks in the Control Account
It’s possible for a business to make a payment to a supplier, but due to there being insufficient funds in the business’s bank account, the check will be dishonored
![cc47](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc47.jpg)
To record a dishonored check, you do the opposite of what you did when recording the transaction in the first place.
![cc48](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc48.jpg)
You credit the supplier’s account to show you are taking value back from it.
![cc49](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc49.jpg)
Then you debit the cash account to show you are returning the value to it.
![cc50](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc50.jpg)
This way, the supplier’s account shows the business still owes money to the supplier
![cc51](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc51.jpg)
And the cash account entries offset one another—as if the payment was never made.
![cc52](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc52.jpg)
Doing this will increase the control account’s balance
![cc53](https://seeaccountingnow.online/wp-content/uploads/2022/04/cc53.jpg)