The Sales Ledger Control account (“SLCA”) in the General Ledger measures how much is owed to the business by all its customers. The Sales Ledger measures how much is owed to the business by each of its customers.
At the end of an accounting period, a bookkeeper will reconcile the SLCA to the Sales Ledger.
If this is not done it increases the likelihood that errors will be made that are not corrected. This can then mean that some customers will be asked to pay too much (which can damage relationships with them) and others might be asked to pay too little or not at all (which will damage the business’ cash flow).
The reconciliation process
- Calculate the balance at the end of the period in the SLCA
- Calculate the balances for all the customers at the end of the period in the Sales Ledger
- Create a Trade Receivables list (also known as a Trade Debtors list or Sales Ledger list) by recording all the balances in the Sales Ledger and then adding them up
- Compare the SLCA balance with the total of the Trade Receivables list
- If there is a difference between the total of the Sales Ledger list of customer balances and the SLCA balance then we know that one or more errors have been made. These errors would then be identified and corrected.
- If however, the there is no difference, we have some assurance that customer debts have been recorded correctly.
[Please note that the reconciliation process does not guarantee that all errors have been identified but it should reduce the risk. The same error for example could be made in both the SLCA and a customer account. In addition, if a transaction is recorded in the wrong customer account, this would not be highlighted by a reconciliation]
Illustration
A business’ SLCA at the end of a period is as follows:
The following list of balances at the same date has been extracted from the Sales Ledger
We can see that the SLCA balance at the end of the period is £68,000 and the total of the trade receivables list is £70,000. As there is a difference of £2,000 the bookkeeper or accountant would have to investigate the difference, find out its cause and make corrections as required.
Why might differences arise?
Differences can have a wide range of causes.
Errors made in preparing the trade receivables list
- Customer account balances might be omitted from or duplicated in the list
- An overpaid customer balance might be recorded as owing from the customer and vice versa
- A customer balance might be recorded incorrectly in the list (e.g. £805 recorded as £850)
- The bookkeeper or accountant might have added up the list of customer balances incorrectly
Errors made in calculating period totals in the books of prime entry
Under a manual double-entry bookkeeping system, the totals from the books of prime entry are posted to the General Ledger accounts but it is the individual transactions that are posted to customer accounts in the Sales Ledger. Thus, if there are any errors made in calculating the total of the gross columns in the sales day book, sales returns day book and discounts allowed day book or in the sales ledger column of the cash book, then a difference will arise when the amounts are posted to the ledgers.
Errors made in posting transactions to the ledgers
- The wrong amount might be posted to the SLCA or to a customer account in the Sales Ledger (e.g. the total of the gross column in the Sales Returns Day Book is £1,020 but £1,000 is posted to the SLCA)
- An entry might be recorded in the wrong side of the SLCA but not in a customer account in the Sales Ledger, or vice versa
- An amount might be posted to the SLCA but is omitted from the customer account in the Sales Ledger, or vice versa
- An amount might be duplicated in the SLCA but is posted once in the customer account in the Sales Ledger, or vice versa
Errors made in calculating the ledger account balances
The balances carried down at the end of a period might be calculated incorrectly in the SLCA or in one or more of the customer accounts in the Sales Ledger
Other ways to spot errors
It should be clear from the above that reconciling the SLCA to the Sales Ledger can be a time consuming process as there are so many reasons why a difference might arise. Accountants and bookkeepers watch out for the following to help them identify any errors:
- Surprising balances in the sales ledger; e.g. balances that are unusually high or low, or are overpaid without reason
- Queries from customers about a statement balance received from the business. These might indicate that something has been missed or recorded incorrectly in their customer accounts
