March 2024
Teresa Clarke explains how the receivables ledger control account and the payables ledger control account work.
The sales ledger control account is referred to as the receivables ledger control account in AAT study materials. This is a summary of the money outstanding from the customers of a business. The receivables ledger control account is an asset to the business because it is summary of money owed to the business by its customers. The sales ledgers are referred to as receivables ledgers in AAT study materials.
These are the individual customer accounts showing how much each customer owes the business. These are referred to as subsidiary ledgers or memorandum ledgers and they are not part of the double entry system. The entries will always mimic the entries in the receivables ledger control account. For example, a new credit sale to a customer will be debited to the receivables ledger control account, so it will also be debited to the subsidiary ledger.
The balance on the receivables ledger controlaccount should match the total of the balancesfrom the individual receivables ledgers. When constructing the receivables ledgercontrol account, or RLCA, remember that thisis an asset account, because it is a summary ofmoney to the business by its customers.The balance brought down is an assetbecause it is money owed to the business, so thisis a debit.
Usually, the only other debit entry would be more credit sales because they increase what the customers owe the business. (The exception to this would be a correction of an error or a disallowed or bounced cheque.)
Everything else is a credit because they will reduce what is owed to the business. For example, a payment from the customer will reduce what they owe the business, a discount allowed to the customer will reduce what they owe the business, a credit note issued will reduce what they owe the business.
The purchases ledger control account is referred to as the payables ledger control account in AAT study materials. This is a summary of the money owed by the business to its suppliers. The payables ledger control account is a liability to the business because it is a summary of money owed by the business to its suppliers.
The purchases ledgers are referred to as payables ledgers in AAT study materials. These are the individual supplier accounts showing how much each supplier is owed by the business. These are referred to as subsidiary ledgers or memorandum ledgers and they are not part of the double entry system. The entries will always mimic the entries in the payables ledger control account. For example, a new credit purchase from a supplier will be credited to the payables ledger control account, so it will also be credited to the subsidiary ledger.
The balance on the payables ledger control account should match the total of the balances from the individual payables ledgers. When constructing the payables ledger control account, or PLCA, remember that this is a liability account, because this is a summary of money by the business to its suppliers. The balance brought down is a liability because it is money owed by the business, so this a credit.
The only other credit entry would be more purchases on credit. (The exception to this would be a correction of an error.) Everything else is a debit because they will reduce what the business owes to its suppliers. For example, a payment made to the supplier will reduce what the business owed them, a discount received from the supplier will reduce what the business owes them, a credit note received from a supplier will reduce what the business owes them.
I hope that has helped with your understanding of these control accounts. If you like my way of explaining things, you might like my workbooks, which are all available from Amazon in both paperback and as eBooks. The links to all my workbooks can be found at https://www.teresaclarke.co.uk/
- Teresa Clarke is a freelance AAT Tutor
