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 be equal to the total of the subsidiary accounts. Any differences in the two totals should be explained, and where the differences are due to errors, these must be corrected. Corrections will be to either the control account or the subsidiary accounts. A Sales Ledger Control Account will typically be used to record the following transactions: Sales Ledger Control Account Date Balance b/d Sales Returned Cheques Interest to customers X X X X X Balance b/d X Date Sales Rtns Contra Entries Disc Allowed Cash Recd Bad Debts Balance c/d X X X X X X X .

A Purchase Ledger Control Account will typically be used to record the following transactions: Purchase Ledger Control Account Date Purchase Rtns Disc Recd Cash Paid Contra Entries Balance c/d X X X X X X Balance b/d Date Balance b/d Purchases X X .

. X X

Carrying out a Reconciliation

The steps in a reconciliation of a sales ledger control account balance to the balances on the debtors account in the sales ledger are as follows. (The same steps should be applied to reconcile the purchase ledger control account with the balances on the supplier accounts In the purchase ledger) 1. Compare the balance on the sales ledger control account with the sum of the balances on the individual customer accounts. If there is a difference one or more errors or omissions has occurred. 2. Identify the errors or omissions and decide whether the error has occurred in the control account or in the individual customers subsidiary account. 3. Once the error has been identified, the appropriate correction should be made.

Why do we use control accounts?

They give instant information to management on the total of receivables/payables/VAT. Make fraud more difficult In helping to locate errors

Note. Reconciliations do have limitations as it cannot pick up all errors. If the correct amount has been entered into the wrong customers subsidiary account this will not be identified through the reconciliation process.