Control Accounts

What is a Control Account?

A Master Account which controls a number of subsidiary accounts (Memorandum accounts). A control account records the total value of transactions of a particular type. Three commonly used control accounts are: Sales Ledger Control Account Purchase Ledger Control Account VAT Control Account

Each control account is a General Ledger Account in the accounting system. The Control Account at any time should e e!ual to the total of the su sidiary accounts. Any differences in the t"o totals should e e#plained$ and "here the differences are due to errors$ these must e corrected. Corrections "ill e to either the control account or the su sidiary accounts. A Sales Ledger Control Account "ill typically e used to record the follo"ing transactions: Sales Ledger Control Account %ate 'alance (d Sales *eturned Che!ues +nterest to customers & ) ) ) ) %ate Sales *tns Contra Entries %isc Allo"ed Cash *ec,d 'ad %e ts 'alance c(d . & ) ) ) ) ) ) )

) 'alance (d )

A Purchase Ledger Control Account "ill typically e used to record the follo"ing transactions:

Purchase Ledger Control Account %ate Purchase *tns %isc *ec,d Cash Paid Contra Entries 'alance c(d & ) ) ) ) ) ) 'alance (d %ate 'alance (d Purchases

. & ) )

. ) )

Carrying out a Reconciliation

The steps in a reconciliation of a sales ledger control account alance to the alances on the de tors account in the sales ledger are as follo"s. -The same steps should e applied to reconcile the purchase ledger control account "ith the alances on the supplier accounts +n the purchase ledger. /. Compare the alance on the sales ledger control account "ith the sum of the alances on the individual customer accounts. +f there is a difference one or more errors or omissions has occurred. 0. +dentify the errors or omissions and decide "hether the error has occurred in the control account or in the individual customers su sidiary account. 1. 2nce the error has een identified$ the appropriate correction should e made.

Why do we use control accounts?

They give instant information to management on the total of receiva les(paya les(VAT. 3a4e fraud more difficult +n helping to locate errors

5ote. *econciliations do have limitations as it cannot pic4 up all errors. +f the correct amount has een entered into the "rong customers, su sidiary account this "ill not e identified through the reconciliation process.