Control Accounts

 

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

Comments