Control account contains the total of all entries in all the individual
accounts in the general ledger. Because it is a total (or summary) of all the
individual accounts in the general ledger, it follows that the balance of the
control account will equal the total of all the individual balances in the
general ledger. Any shortfall of this implies that there is an error in the
accounts. Since “control account” is used for totals of the individual accounts
in the ledger, it is therefore referred to as total account.
Principally, control accounts are used to regulate the sales
ledger and purchases ledger. Thus, a control account for sales ledger is also
referred to as sales ledger control account or total debtors account. In like
manner, the control account for purchases ledger is called a purchases ledger
control account or total creditors account.
Read: formats of and illustration of how to prepare control accounts
Uses of Control Accounts
The
importance of control accounts in an organisation include the following:
1.
Time saving in tracing
error
Any
error can be easily traced to the individual account involved and corrected as
appropriate.
2.
Proof of arithmetic
accuracy of entries
Error-free
control accounts are confirmation of arithmetic accuracy of entries in the
general ledger.
3.
They are used as a form of
internal control
Senior
officers who are responsible for the control accounts in an organisation tend
to scrutinize the work of junior officers before passing a transaction into the
system. This makes fraud perpetration relatively difficult.
Read: formats of and illustration of how to prepare control accounts
4.
Easy account balances
The
balance on the sales ledger control account can easily be taken as debtors’
(account receivables) balance and the balance in the purchases ledger control
account can easily be taken as creditors’ (account payables) balance.
5.
Used to locate errors
They allow grouping of similar transactions
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