Control Accounts
Control accounts are summary accounts for the particular type of Ledger (e.g. Receivable, Payable Ledger Control Account). It works as Trial Balance for the Ledger to which it belongs.
The backbone of the accounting, Accounting Equation entails being balanced every time. This means that the total of Debit Sides in any accounting system shall be equal to the total of the Credit side.
However, in actual life especially when accounting is being done in a manual system (not in a computerized environment), this may not be the case all the time. Data from the Journal is being transferred to Ledgers with different frequencies. Chances are there that some entries may remain missing or incorrectly posted into leaders.
For Example in large organizations with multiple products and extensive credit sales, there will be many customers, so many personal ledgers for customers accordingly. In the manual accounting system, it is very likely that some transactions may get omitted from posting into ledgers.
Therefore, to ensure that all entries are posted correctly and to reduce errors in data recording, organizations deploy various control mechanisms.
Out of many such internal control mechanisms, maintenance of Ledger Control Accounts is a control process.
Control Account enables the review to summarize the position of the ledger at a glance. It helps to ensure all the accounting transactions from Journal have been correctly posted into the Ledgers.
At the period end when the trial balance is prepared, there are chances that it may not agree (The total of all Debits is not equal to the total of all credits). It may be very difficult to trace all the erroneous entries. Therefore each type of ledger shall have its own control accounts.
Principle of Control account
Control accounts contain summarized information of the ledgers it belongs. The periodic total from the Journals is posted into the control account and at the period end balance of this account is compared to the Ledger these accounts are associated with.
If the total balances of all individual accounts within a ledger are in agreement with the balance of the Control account it implies that the transactions within that ledger are arithmetically accurate and complete.
Let’s take the example of a Receivable Ledger and Receivable Ledger Control Account.
At the end of each day, the credit sales recorded in Salse Journal are posted to a personal receivable account.
Similarly, at the end of the day, the cash received recorded in Cashbook is posted into the personal receivable account of each customer.
Further, the goods returned recorded in the Sales return Journal, are posted to their respective personal accounts at each day’s end.
After the lapse of a calendar month, the total of the sales Journal is posted into the Receivable Control Account on the debit side and the same amount is posted on the credit side of the Sales Ledger. Likewise, the total of the receipt of Cashbook (Cash and Bank Receipt against Credit Sales) are posted into Receivable Control Account. Further, the total of Sales Return in Sales Return Journal is Debited in Sales Return Ledger in General Ledger, and Credited in Receivable Control Account accordingly.
Now that all the entries relevant to Sales and receivables have been posted to the concerned ledgers, balances of all customer personal Ledgers are added up and compared with the balance of Receivable Control Account and checked if both balances are in agreement. If there is any difference between the balance of Receoevebale Control Account and Total of all customer’s Personal Ledger, then such difference is further investigated.
Illustration
Control Account as a part of Double Entry
We know that a typical Journal Entry for Credit sale is;
Dr. Customer Ledger XXX
Cr. Sales Ledger XXX
From the above example, we may observe that there is duplication for posting of debit part from the Credit Sales.
First, at each day’s end, credit sales are entered in the Debit Side of individual Customer Ledgers.
Secondly, each month we post the total of Sales Journal into the debit side of the Receivable Control Account, and the credit side of the Sales Ledger.
This makes the journal entries as follows;
Dr. Customer Personal Ledger (daily balances) XXX
Dr. Receivable Control Account (Monthly Total) XXX
Cr. Sales Ledger (Monthly Total) XXX
From the above entry, we can see that entry in Individual Customer Personal Ledger seems to be excess.
Here is an important point to learn which most of the students are confused with. In larger organizations, the first entry from the Customer personal Ledger is not part of the Double Entry System and individual customer ledgers are kept as a memo account. However, in smaller businesses where the number of customers is low, these personal ledgers are made part of a double-entry system, whereas Receiveabel Control Accounts are kept as memorandum accounts.
The same principle of bookkeeping is followed for the other Control Accounts as well.
Receivable Control Account is also called Sales Ledger Control Account, similarly, Payable Control Accounts is sometimes called Purchase Ledger Control Account.
Information for control accounts
The Source of information for the sales and Purchase Ledger Control Account is as follows;
Sales Ledger Control account
| Information | Source |
| 1 Opening debtors | List of debtors’ balances drawn up at the end of the previous period |
| 2 Credit sales | Total from the Sales Journal |
| 3 Returns inwards | Total of the Returns Inwards Journal |
| 4 Cheques received | Cash Book: bank column on the received side. List extracted or the total of a special column for cheques which has been included in the Cash Book |
| 5 Cash received | Cash Book: cash column on the received side. List extracted or the total of a special column for cash that has been included in the Cash Book |
| 6 Discounts allowed | Total of discounts allowed column in the Cash Book |
| 7 Closing debtors | List of debtors’ balances drawn up at the end of the period |
Purchases Ledger Control account
| Information | Source |
| 1 Opening creditors | List of creditors’ balances drawn up at the end of the previous period |
| 2 Credit purchases | Total from Purchases Journal |
| 3 Returns outwards | Total of Returns Outwards Journal |
| 4 Cheques paid | Cash Book: bank column on the payments side. List extracted or a total of a special column for cheques which has been included in the Cash Book |
| 5 Cash paid | Cash Book: cash column on the payments side. List extracted or a total of a special column for cash that has been included in the Cash Book |
| 6 Discounts received | Total of discounts received column in the Cash Book |
| 7 Closing creditors | List of creditors’ balances drawn up at the end of the period |
Control accounts are vital to control tools to ensure accuracy and completeness of Ledgers, however, with the emergence of technology in the field of data computation, entries in ledgers are automatically updated and added up. Modern bookkeeping and Business Management applications have made it very easy to view the summarized position of any Ledger at any time. Therefore the use of control accounts is declining in modern data management and accounting systems.
