B2: 3.06 Reconciling the Purchases Ledger Control Account

The Purchases Ledger Control account (“PLCA”) in the General Ledger measures how much is owed to the business to all its suppliers. The Purchases Ledger measures how much is owed to the business to each of its suppliers.

In the same way that a bookkeeper will reconcile the SLCA to the Sales Ledger at the end of a period, they will also reconcile the PLCA to the Purchases Ledger.

Reconciling the PLCA to the Purchases Ledger will reduce the risk that an error is made when recording credit transactions with suppliers and calculating the amounts owed to suppliers. If balances owed to suppliers are recorded incorrectly a business might overpay or underpay their suppliers which can then damage their cash flow and their business relationships. If reconciliations are not carried out there is an increased likelihood of errors going uncorrected.

The reconciliation process

The reconciliation process is almost identical to the way we reconcile the SLCA to the Sales Ledger

  1. Calculate the balance at the end of the period in the PLCA
  2. Calculate the balances for all the suppliers at the end of the period in the Purchases Ledger
  3. Create a Trade Payables list (also known as a Trade Creditors list or Purchases Ledger list) by recording all the balances in the Purchases Ledger and then adding them up
  4. Compare the PLCA balance with the total of the Trade Payables list
    1. If there is a difference between the total of the Purchases Ledger list of supplier balances and the PLCA balance then we know that one or more errors have been made which must be identified and corrected
    2. If however, the there is no difference, we have some assurance that the amounts owed to suppliers are correct

[Please note that the reconciliation process does not guarantee that all errors have been identified but it should rule out certain types of errors. For example, if a purchase invoice for £10,000 plus VAT is recorded in the Purchases Day Book as £1,000 plus VAT the amount posted to the Purchases Ledger supplier account will be wrong but so will the totals for the period in the Purchases Day Book, so the amount posted to the PLCA will be wrong by the same amount]

Illustration

A business’ PLCA at the end of a period is as follows:

The following list of balances at the same date has been extracted from the Purchases Ledger

The PLCA balance at the end of the period is £2,600 and the total of the trade receivables list is £2,800, a difference of £200. The bookkeeper or accountant would have to investigate the reasons for this difference and then make corrections as necessary.

Why might differences arise?

Differences can have a wide range of causes.

Errors made in preparing the trade payables list

  1. Supplier account balances might be omitted from or duplicated in the list
  2. An overpaid supplier balance might be recorded as owing to the supplier and vice versa
  3. A supplier balance might be recorded incorrectly in the list (e.g. £990 recorded as £909)
  4. The bookkeeper or accountant might have added up the list of supplier account 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 individual transactions are posted to supplier accounts in the Purchases Ledger. Thus, if there are any errors made in calculating the total of the gross columns in the purchases day book, the purchases returns day book and discounts received day book or in the purchases 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

  1. The wrong amount might be posted to the PLCA or to a supplier account in the Purchases Ledger (e.g. the total of the gross column in the Purchases Day Book is £600 but £500 is posted to the PLCA)
  2. An entry might be recorded in the wrong side of the PLCA but be recorded in the correct side of the Purchases Ledger, or vice versa
  3. An amount might be posted to the PLCA but is omitted from the supplier account in the Purchases Ledger, or vice versa
  4. An amount might be duplicated in the PLCA but is posted once in the supplier account in the Purchases 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 PLCA or in one or more of the supplier accounts in the Purchases Ledger

Other ways to spot errors

Reconciling the PLCA to the Purchases Ledger can be time consuming if there is a discrepancy due to the large numbers of possible reasons as to why a difference can arise. Accountants and bookkeepers watch out for the following to help them identify any errors:

  1. Surprising balances in the purchases ledger; e.g. balances that are unusually high or low, or are overpaid without reason
  2. Unusual balances in the expenses accounts in the General Ledger, e.g. the balance on the advertising account is far higher than expected
  3. Differences between a supplier’s account balance in the Purchases Ledger and the balance recorded on a statement of account received from the suppliers. These might indicate that something has been missed or recorded incorrectly in the supplier’s account
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