Finding errors is usually difficult when many journal entries have been passed and hundreds of ledgers created for different accounts.
Although the issue of the volume of transactions recorded being too much may not be an acceptable excuse in this day and age where quantum computing power energized by the availability of big data has made data analysis a fairly less time-consuming exercise.
This fascinating power of computing technology can only be fully harnessed when the producers of the data try to provide near complete information. Anyways, that is not the theme of today’s article which is focused on answering the question ‘what is control account?’
What is control account?
It is an early indication that an error exists somewhere in the accounting entries whenever a trial balance did not agree. Tracing these errors are done in a jiffy in small businesses, but, the case is different for larger organizations where thousands of ledgers are in operation.
The above problem can be better handled by having a mechanism that localizes and confines errors to easily identifiable ledger(s) so that the culprit ledgers can easily be investigated and the error fixed.
According to Oxford Dictionary of Accounting, control account is an ‘Account which the balances are designed to equal the aggregate of the balances on a substantial number of subsidiary accounts’
A control account is any single account selected for the debiting and crediting of the individual items that are already fully debited or credited in their respective accounting ledger.
Summarily, a control account is an account which contains the summary or total of entries in different individual accounts of standalone ledgers.
Why is control account still useful?
Control account is one way of organizing data for efficient operations. One of the functions of accounting department is to provide information in the right time, right format and right quantity. Hence, control accounts ensure that this function of providing accurate information is accrued out correctly. Below are bullet points of uses and advantages of control account:
- Proof of arithmetic accuracy
- Improves the process of preparing final accounts
- Ascertaining missing figures in the case of incomplete records
- Acts as a fraud preventive and corrective control tool
- Reduces the amount of time spent in searching for errors as it gives direction to the possible reason for the variance.
- Helps in organizing accounts that are similar into groups for troubleshooting
- Balances can easily be ascertained almost at a glance
- Provides avenue to exercise supervisory functions
Types of control accounts
You can have a control account of your choice. However, having too much of control accounts in your accounting system can slow things down a bit. Hence, below are the two most popular control accounts that are in use in practice.
- Sales ledger or receivables control account
- Purchase ledger or payables control account
How are control accounts prepared?
In as much as the control account acts as a summary of individual ledgers, the figures in the control accounts are not directly obtained from the individual accounts – doing so would be counter intuitive.
Sources of information for control account preparation
The table below tabulates control accounts and their sources of information categorized under debit and credit entries.
|Receivables’ (Debtors’) Control Account|
|Total credit sales||Sales day book|
|Cheques disallowed from customers||Cashbook|
|Interests Charged to our customers||Journal|
|Return inwards||Return inwards daybook|
|Cheques received||Bank column in cashbook|
|Discount Allowed||Cash book|
|Payables’ (Creditors) Control Account|
|Returns outwards||Returns outwards daybook|
|Cash paid to customers||Cashbook|
|Sales Ledger Contra (net off)||Journal|
|Total Credit Purchases||Purchase daybook|
|Interest charged by customers||Journal|
What are contra entries?
Contra entries are entries that occur when a supplier also a customer. The fact that businesses can buy and sell on credit makes it possible for a business to buy from and to sell t the same person. The inter-indebtedness will be set-off against each other. Reconciliation is done at the end of each period usually monthly with differences being net off.