Control accounts - making life simpler

Control or clearance accounts are temporary holding accounts. It's the ideal way to track an ongoing accrual that occurs on a monthly basis. An example would be salary payments.

During a normal salary payment cycle, the following statutory deductions have to be taken into account:

• Employees Provident fund or EPF
• Social Security Organisation or SOCSO
• Schedular tax deduction or STD (PCB)
  

Of the above, the employer contributes a share towards (1) and (2). The total of EPF and SOCSO contributions, as well as the STD would need to be remitted to the relevant bodies in the following month by the prescribed dates.

Breaking it down therefore, in bookkeeping we would need to track:

• Gross salaries,
• Net salary payable,
• EPF payable,
• SOCSO payable, and,
• STD payable.
  

If you only have a handful of employees, tracking what is payable and what has been paid will not be such a difficult task. With more employees however this becomes increasingly a chore.

The easy way to track the above would be to set up control accounts. These accounts would be the indicators of what is due and what is not. Balances in these accounts should be zero by a given date. If the balance is not zero, assuming that your salary computations are correct, then:

• For credit balances - either you have not made the payment or you short paid
• For debit balances - you have not accrued for the payable or have overpaid.
  

Control accounts are useful with either the accrual or cash accounting methods.

Let's use the following example as a basis for the entries required in the above methods:

			Employee		Employer		Total
	Basic salary		4,000.00
	EPF		440.00		480.00		920.00
	SOCSO		14.75		51.65		66.40
	STD		67.00		-		67.00
	Net		3,478.25

Accrual accounting
In accrual accounting, you pass journal entries for the expenses and payables first and make the necessary payments at a later date.

The first step would be to record the expenses and payables as follows:

			Debit		Credit
	Salary expense		4,000.00
	EPF expense		480.00
	SOCSO expense		51.65
	Salary control				3,478.25
	EPF control				920.00
	SOCSO control				66.40
	STD control				67.00
			4,531.65		4,531.65

When payment is made, you would credit bank and debit the control account, and if all is well, the balances in the control account will be zero.

This practice is ideal in large organisations that have HR departments calculating the payroll, while payment is made by the finance departments. Payroll details are kept confidential.

Cash accounting
In cash accounting, transactions are recorded as payments are made. In this instance, salaries would usually be paid first while statutory deductions are remitted later.

So, to record the payables, make the following entry when paying out salaries:

			Debit		Credit
	Bank				3,478.25
	Salary expense		4,000.00
	EPF expense		480.00
	SOCSO expense		51.65
	EPF control				920.00
	SOCSO control				66.40
	STD control				67.00
			4,531.65		4,531.65

Because the net salary is paid immediately, there is no necessity for a salary control account. Instead, credit the net amount to the bank account.

In a single entry accounting system, your transaction screen would look like this:

EPF	480.00
SOCSO	51.65
EPF control	(920.00)
SOCSO control	(66.40)
STD control	(67.00)
Net payment	3,478.25

In making a payment, the double entry would be credit bank and debit whatever items you enter in the payment section. The effect of putting a negative amount in the payment section would, therefore, convert a debit entry to a credit entry. The net payment would be the cheque amount and is calculated by the system.

Conclusion
While it may seem a bit tedious to have these accounts, I have found that it made life easier when it came down to checking what was paid and what was not. It also becomes easy to identify where the difference is coming from because each payable can easily be matched to the payment.

The added advantage was that it kept my Salary, EPF and SOCSO expense accounts clean. If you follow the above method, you will only have one entry in each account for each month. This makes it a breeze to tally the figures back to salary sheets.

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