The Purpose of Control Accounts
By Randika Lalith Abeysinghe
The reasons for having control accounts are as follows:
1. Check on the accuracy
They provide a check on the accuracy of entries made in the personal accounts in the sales ledger and purchase ledger. It is very easy to make a mistake in posting entries, because there might be hundreds of entries to make. Figures might get transposed. Some entries might be omitted altogether, so that an invoice or a payment transaction does not appear in a personal account as it should. By comparing: o The total balance on the debtors account with the total of individual balances on the personal accounts in the sales ledger. o The total balance on the creditors account with the total of individual balances on the personal accounts in the purchase ledger. It is possible to identify the fact that errors have been made. 2. Location of errors
It could also assist in the location of errors, where posting to the control accounts are made daily or weekly, or even monthly. If a clerk fails to record an invoice or a payment in a personal account, or makes a transaction error, it would be a formidable task to locate the error or errors at the end of a year, say, given the hundreds or thousands of transactions during the year. By using the control account, a comparison with the individual balances in the sales or purchase ledger can be made for every week or day of the month, and the error found much more quickly than if accounts did not exist. 3. For internal check
Where there is a separate of clerical bookkeeping duties, the control account provides an internal check. The person posting entries to the accounts will act as check on a different person whose job it is to post entries to the sales and purchase ledger accounts. 4. More simply and quickly
To provide debtors and creditors balances more quickly for producing a trial balance or balance sheet. A single balance on a control account is obviously expected simpler and quickly than many individual balances in the sales or purchase ledger. This means also that the number of accounts in the double entry bookkeeping system can be kept down to a manageable size, since the personal accounts are memorandum accounts only and the control accounts instead provide the accounts required for a double entry system. http://accounting-support.blogspot.com/2009/12/53-purpose-of-control-accounts.html Article Source: http://EzineArticles.com/?expert=Randika_Lalith_Abeysinghe
What is the purpose of control accounts?
A control account is a summary account in the general ledger. The details that support the balance in the summary account are contained in a subsidiary ledger—a ledger outside of the general ledger. The purpose of the control account is to keep the general ledger free of details, yet have the correct balance for the financial statements. For example, the Accounts Receivable account in the general ledger could be a control account. If it were a control account, the company would merely update the account with a few amounts, such as total collections for the day, total sales on account for the day, total returns and allowances for the day, etc. The details on each customer and each transaction would not be recorded in the Accounts Receivable control account in the general ledger. Rather, these details of the accounts receivable activity will be in the Accounts Receivable Subsidiary Ledger. This works well because the employees working with the general ledger probably do not need to see the details for every sale or every collection transaction. However, the sales manager and the credit manager will need to know detailed information on individual customers, including whether a customer recently reduced their account balance. The company can provide these individuals with access to the Accounts Receivable Subsidiary Ledger and can keep the general ledger free of a tremendous amount of detail. Related Questions
* What is a general...
Please join StudyMode to read the full document