What is a Control Account?
Control Account is a memorandum account into which are transferred in totals, the various amounts of the transactions which have been debited or credited in details to an individual ledger account.
Subscribe to our YouTube channel so as not to miss a tutorial video.
Control Account in Respect of a Ledger
A control account in respect of a ledger, therefore, operates as a control account for the ledger and provides a check on the accuracy of specified ledgers.
In this article, we shall be looking at three types of ledgers which are, The purchases Ledger, The Sales Ledger and, General Ledger. Also, you are going to learn what a contra account is and also the uses and advantages of a control account.
- The purchases ledger: This is for creditors’ accounts.
- The sales ledger: This is for the debtors’ account.
- General ledger: This is for all accounts.
The Purchases Ledger:
This is the ledger in which all purchases are posted. It is also called Purchases Ledger Account or Creditors Ledger.
One ledger will be opened in the general ledger as a control for creditors. This ledger is referred to as the Purchases Ledger Control Account.
The Sales Ledger:
This is the ledger in which all Sales are posted. It is also called Sales Ledger Account or Debtors ledger.
One ledger will be opened in the general ledger as a control for the debtor. This ledger is referred to as the Debtors Ledger Control Account.
The General Ledger:
General Ledger is the main ledger while purchases and sales ledgers are subsidiary to General Ledger. The general ledger contains the summary of all accounts; e.g., Assets, Liabilities, Capital, Creditors, Debtors, etc., used for the preparation of trial balance and final accounts.
- Purchases and Sales ledger control accounts summarise individual accounts. They are called subsidiary ledgers. The individual account shows business transactions in detail.
- The subsidiary ledgers of purchases and sales ledgers can be created from the general ledger and have a total account of creditors and debtors.
- Purchases ledger control account or total creditors control account summarises and controls accounts containing creditors’ account.
- Sales ledger control accounts or total debtors control account summarises the account of debtors.
- The general journal is simplified by the use of subsidiary ledgers for businesses selling and buying on credit and finds it necessary to maintain a separate account for each customer.
- A special account receivable ledger and account payable ledger cancels out multiple/repetitive entries in the general ledger.
Uses and Advantages of Control Account.
- To verify the arithmetical accuracy of the accounts in the ledger. (Watch video on Ledger & Trial Balance on YouTube)
- It makes the location of errors easy in personal accounts.
- Debtors and Creditors account balances can be extracted for the preparation of the final accounts because it performs the same functions as the trial balance.
- It helps to monitor and check accounts clerks who may be engaging in fraudulent acts in the sense that the accountant will always ask for balances of individual accounts for comparison with the control accounts in General Ledger.
- It encourages the division of labour among book-keepers keeping the books of original entry. Each subsidiary ledger may be handled by a different person one person may handle the general ledger while the other handles the subsidiary ledger.
- It reduces the size of the General ledger, has up-to-date records of debtors and creditors.
- It helps to obtain efficient recordings of transactions.
What are Contra Accounts?
Contra Accounts occurs when a person buys and sells to a company. There will be two accounts in his name. The two accounts should be adjusted from time to time by transferring the smaller balance in one ledger account to the bigger balance for the final settlement of accounts.
It means that the amount owing creditors is used to offset the debt being owed in the Sales ledger. Such transfer should be shown in the control accounts and items affecting the personal account must affect the control accounts. It also shows the entries in the purchases and sales ledger control accounts.