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Accounting reconciliations

4.2 The status of the control account

So far, we have considered that the double entry is completed by entering each
transaction in the receivables personal accounts in the sales ledger, and entering the
totals of sales, returns, sales tax, cash received and discounts allowed in the nominal
ledger. Now that we have introduced a control account, it might appear that we are
duplicating the entries in the sales ledger. Obviously, this cannot happen, as the
ledger accounts will be out of balance. We cannot have both the receivables
accounts and the control account as part of the double-entry system. Therefore,
either one or the other of these must be treated as being outside the double-entry
system. The records that are outside the double-entry system are known as
memorandum accounts.

4.3 Contra entries

When one entity is both a supplier and a customer of another entity it is common for
an agreement to be made to set off the sums receivable and payable, and for a
single payment to be sent between the parties to settle the net balance. The entry to
record the setting off of the balances is known as a contra entry.

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