Control Accounts

Lecturer 4
Meaning of Control Accounts
 For the simplest organisation, a single ledger, the general ledger may be for an
efficient recording of its transactions
 Errors affecting trial balance can easily be located within the ledger and
corrected.
 As a business grows, in size and complexity, the single ledger becomes
inappropriate and this calls for subdivision of the general ledger or the nominal
ledger
 Control Accounts are accounts prepared to show a summarised from the
individual items that have been entered in various ledgers
 A control account is a summary account that enables you to see at a glance
whether the General Ledger balance for the ledger to which that control account
belongs agrees with the total of all the individual accounts held within that ledger.
Meaning of Control Accounts Cont.

 They provide a summary of the entries contained in the accounts of a subsidiary ledger
 Control accounts are accounts that that are self balancing and perform the same function of
a trial balance
 Because totals are used, control accounts are sometimes known as ‘total accounts’
 It is important to note that the preparation of the debtors and creditors control accounts
does not constitute part of the double entry system
Divisions of the ledger

The ledger is usually divided into the following

 The sales ledger

 The purchases ledger

 The cash book and

 The general or nominal ledger

The need for the division of the ledgers

 Where there are large number of transactions, a single ledger becomes physically too
heavy to handle

 It allows more than one person to work on the ledgers at the same time

 Improves means of internal control for checking the accuracy of the ledgers, facilitates the
location of errors and deter fraud and misappropriation of cash
The need to prepare the Control Accounts

 The main purpose of the control accounts is to check the accuracy of the ledger in which it
relates

 Since the entries in the control accounts are the same (in total) as those in the ledger to
which it relates, the balance on the control accounts should be equal to the total of the list
of balances of the individual accounts in the ledgers

 If the total on the control accounts is the same as the list of balances, this proves that the
ledger is arithmetically accurate and that all items in the books of prime entry have been
entered in the ledger on the correct side
Advantages of Control Accounts

 Facilitates the detection of errors highlighted in the trial balance

 They provide proof of the arithmetical accuracy of the entries in each ledger
 They provide a quick system to ascertain up to date debtors and creditors
 Deter fraud and misappropriation of funds
 Facilitates the preparations of the interim final accounts.
Disadvantages of Control Accounts

 Control accounts lack details as it is only a summary account

 The errors that do not affect the agreement of the trail balances may be present in the
control account

 Control accounts may themselves contain errors

 Some errors may be carried forward from the ledgers to the control accounts example
compensating and complete reversal of entries
Types of Control Accounts

Generally there are two types of control accounts, namely

 Sales Ledger/ total debtors control accounts

 Purchases ledger/ total creditors control accounts

Sales Ledger Control Accounts

 This is a summary of the entries made in the sales ledger or the debtors accounts
 Thus the totals of all items debited to the debtors accounts are debited to this account,
whiles those credited are also credited to this account
 Sales ledgers control account can also be terms as the total debtors accounts
Items found in the Sales Ledger Control
Accounts
Debit Credit

Credit Sales Cash/Cheque receives from Debtors

Dishonoured Cheques Discount allowed

Interest on overdue debts Return inwards

Cash Refund Bad debts written off

Correction of errors Bill Receivable

Contra entry (Set offs)

Correction of errors
Sales Ledger Control Accounts Cont.

Things that do not appear in the sales ledger control accounts

 Cash sales
 Provision for doubtful debts
 Trade discounts
 Carriage Outward
Only item that affect the debtors balance are recorded in the sales ledger control account.
Thus:
 Any item that increases the debtors balance is debited and
 Any item that reduces the debtors balance is credited
To the sales ledger control account
Purchases ledger control account

 This is a summary of all the entries made in the purchases ledger (creditors accounts)
 Thus all items debited in the creditors accounts are in total credited to the Purchases ledger
control account whiles those credited, are in total credited to the Purchases ledger control
account
Items found in the Purchases Ledger Control
Accounts
Debit Credit

Purchases returns Credit purchases

Cash paid to creditors Cash refund

Discount received Bills payables dishonoured

Bill payable Correction of errors

Contra entry (set off)

Correction of errors
Purchases ledger control account Cont.

Things that do not appear in the purchase ledger control accounts

 Cash purchase
 Carriage inwards
Only item that affect the creditors balance are recorded in the purchases ledger control
account. Thus:
 Any item that increases the creditors balance is credited and
 Any item that reduces the creditors balance is debited
To the purchase ledger control account
Reconciliation of the control accounts

 This is a means of ensuing that the entries in the ledger accounts agree with the entries in
the control accounts
 The two should have the same closing balance as ideally they have had the same entries in
both accounts
 The sales ledger reconciliation compares the total of the accounts in the debtors ledger to
the balance on the sales ledger control accounts
 The purchase ledger reconciliation compares the total of the accounts in the creditors
ledger to the balance on the purchases ledger control accounts
 If there is a difference, they must be identified and rectified
Reconciliation of the control accounts Cont.

Why the Sales ledger control account may not agree with the Debtors ledger accounts
 The double entry for a day book total has not been correctly made
 An individual debtors account has been incorrectly balanced
 The sales day book, sales return or the cash receipts books have not been correctly totalled
 Omission of a customer’s account from the list of balances
 Incorrect casting of figures in the debtors ledger
 An entry has been made in either the control account or the customers account but not both
Reconciliation of the control accounts Cont.

Why the Purchase ledger control account may not agree with the Creditors ledger accounts
 The double entry for a day book total has not been correctly made
 An individual creditors account has been incorrectly balanced
 Incorrect casting of figures in the creditors ledger
 Omission of a creditor's account from the list of balances
 An entry has been made in either the control account or the creditors account but not both
Preparing Control Accounts Reconciliation

 Compare the balances on the ledger account with that of the control account

 Review the list of errors to see which account needs amending

 Set up a ‘T’ account for the control accounts

 Prepare reconciliation for the ledger accounts

Format of the Sales Ledger Control Account
Reconciliation
Sales ledger Control account
GHS GHS

Balance per question xxx Adjustment for errors xxx

Adjustment for errors xxx Bal c/f (Revised) xxx

Xxx xxx

Reconciliation of individual debtors accounts with control account balances

Balance extracted from the list of debtors
xxx
Add all error that reduce the debtors ledgers balance xxx

xxx
Less all errors that increase the debtors ledger balance xxx
Revised total agreeing with balance on the control account xxx
Format of the Purchase Ledger Control
Account Reconciliation
Purchases ledger Control account

GHS GHS

Adjustment for errors xxx Balance per question xxx

Bal c/f (Revised) xxx Adjustment for errors xxx

xxx xxx
Reconciliation of individual creditors accounts with control account balances
Balance extracted from the list of creditors
xxx
Add all error that reduce the creditors ledgers balance xxx
xxx
Less all errors that increase the creditors ledger balance xxx
Revised total agreeing with balance on the control account xxx