Control Accounts

rathmaniacal

Hi,
I have been looking at some basic accounting and have a question regarding control accounts. In the book, refund to debtors is put in the debit side of the Debtors Control account, and refunds from creditors is put on the credit side of the Creditors Control account. I am not sure I understand the logic of this. A refund would decrease the amount the debtor owes you so why would it increase the balance on the debit side. Likewise, a refund from a creditor would decrease the amount that you owe the creditor, so why would it be added to the credit side? This is the first time I have looked at this topic, so forgive my obvious ignorance in advance.

JCB

rathmaniacal wrote:

Hi,
I have been looking at some basic accounting and have a question regarding control accounts. In the book, refund to debtors is put in the debit side of the Debtors Control account, and refunds from creditors is put on the credit side of the Creditors Control account. I am not sure I understand the logic of this. A refund would decrease the amount the debtor owes you so why would it increase the balance on the debit side. Likewise, a refund from a creditor would decrease the amount that you owe the creditor, so why would it be added to the credit side? This is the first time I have looked at this topic, so forgive my obvious ignorance in advance.

To take debtor's control as an example...
Amount we are owed = Debit Side
To reduce amount we are owed = Credit Side Entry
To increase amount we are owed = Debit Side Entry

The book says refund to debtors = Debit Side Entry

The reason for the refund to occur is because we have been overpaid.

Example:
DR Balance: 2000 for debt we are owed

We receive 2500 payment
CR Entry: 2500 for payment of debt owed

CR Side is 500 in excess, to cancel this....
DR Entry: 500 for refund of excess payment

Transaction is now balanced

As you may have guessed the opposite is applicable for the Creditor's Control. In a sense, these entries are really 'undoing' entries to correct mistaken payment.

Hope this helps, it takes a while but you'll get your head around it!

rathmaniacal

That's perfectly straightforward. It is not really explained in the book.
Thanks.