What is a Debtors Control Account?
Debtors Control Account Definition
A Debtors Control Account is a summary account that shows the total amount owed by all credit customers to a business.
It is part of the general ledger and consolidates all individual debtor transactions into one total amount.
The Debtors Control Account is also known as the Accounts Receivable Control Account.
Debtors Control Account Entries
There are several components of a Debtors Control Account:
Opening Balance
The Debtors Control Account begins with the opening balance, this represents the total amount owed from customers at the beginning of an accounting period.
Credit Sales
When a business sells goods or services on credit, the transactions are recorded in the Debtors Control Account.
Cash Payments and Discounts
Any cash payments or discounts provided by customers are also reflected in the Debtors Control Account.
These transactions will reduce the amount owed by the customers.
Bad Debts Written Off
When a customer is unable to pay their outstanding amount, this results in a “bad debt” and the amount that the customer owed is written off.
This adjustment prevents overstating the company’s assets, giving a more accurate picture of its finances.
Closing Balance
The closing balance represents the total amount owed from customers at the end of the accounting period.
Are Postings to the Debtors Control Account a Debit or Credit?
The Debtors Control Account is held on the balance sheet as an asset.
It typically has a debit balance, as it shows amounts owed to the business.
Common debits in the account include:
- Credit sales
- Additional charges to debtors
Common credits in the account include:
- Payments received from debtors
- Discounts allowed to customers
- Bad debts written off
Debtors Control Account Examples
Let’s now have a look at two examples showing the configuration of the debtors control account and how the value can move from period to period.
Example 1: Aggregation of Debtors
Suppose a business has a zero balance in their control account, and then makes the following sales on credit:
Sale 1 | Company 1 | £2,000 |
Sale 2 | Company 2 | £1,000 |
Sale 3 | Company 3 | £1,500 |
Sale 4 | Company 4 | £1,000 |
Sale 5 | Company 2 | £2,000 |
Sale 6 | Company 4 | £1,500 |
The Debtors Control Account would show £9,000 as the total, and would be made up of the following entries:
Company | Balance |
Company 1 | £2,000 |
Company 2 | £3,000 |
Company 3 | £1,500 |
Company 4 | £2,500 |
Example 2: Monthly Debtors Movement
Imagine a business has an opening Debtors Control Account balance of £20,000, they make £50,000 in credit sales, received £15,000 in payments, offered £2,000 of discounts and wrote off £1,500 od bad debts.
Let’s see how that would flow through the account over an accounting period:
Category | Value | Debit or Credit |
Opening Balance | £20,000 | Debit |
Credit Sales | £50,000 | Debit |
Payments Received | £15,000 | Credit |
Discounts | £2,000 | Credit |
Bad Debts Written Off | £1,500 | Credit |
Closing Balance | £51,500 | Debit |
To calculate the closing balance, we start with the opening balance, then add on the credit sales, subtract cash payments, discounts and bad debt write offs.
Closing Balance = Opening Balance + Credit Sales – Cash Payments – Discounts Granted – Bad Debts Written Off
Closing Balance = £20,000 + £50,000 – £15,000 – £2,000 – £1,500
Closing Balance = £51,500
Advantages of Using a Debtors Control Account
There are several advantages to using a Debtors Control Account:
Simplifies Financial Reporting
By grouping all individual debtor balances into a single account, a Debtors Control Account simplifies the reporting process.
Instead of having to look at each customer account separately and add them up line by line, businesses can review a consolidated number which represents the total amount they are owed.
Improved Financial Analysis
The Debtors Control Account helps management monitor customer credit limits and payment behaviours by providing a total of outstanding balances.
This makes it easier to track trends in receivables, such as whether the total amount owed is increasing or decreasing.
Supports Financial Decision-Making
Having a clear, consolidated view of outstanding receivables supports better decision-making around credit policies, collection processes, and cash flow management.
Managers can assess overdue debts and take actions to reduce bad debt risk.
Knowing how much cash is expected from customers can help decisions on spending, investing or even borrowing.