Control Account

A control account is a summary account in the general ledger. The details that support the balance in the
summary account are contained in a subsidiary ledger–a ledger outside of the general ledger.
The purpose of the control account is to keep the general ledger free of details, yet have the correct balance
for the financial statements. For example, the Accounts Receivable account in the general ledger could be a
control account. If it were a control account, the company would merely update the account with a few
amounts, such as total collections for the day, total sales on account for the day, total returns and
allowances for the day, etc.
The details on each customer and each transaction would not be recorded in the Accounts Receivable
control account in the general ledger. Rather, these details of the accounts receivable activity will be in the
Accounts Receivable Subsidiary Ledger. This works well because the employees working with the general
ledger probably do not need to see the details for every sale or every collection transaction. However, the
sales manager and the credit manager will need to know detailed information on individual customers,
including whether a customer recently reduced their account balance. The company can provide these
individuals with access to the Accounts Receivable Subsidiary Ledger and can keep the general ledger free
of a tremendous amount of detail.

Types of control accounts:

1. Sales Ledger Control Account (or Total Debtors Account).
2. Purchases Ledger Control Account (or Total Creditors Account).

Sales Ledger Control Account

$ $
Balance b/f (majority) xxx Balance b/f (minority) xxx
Credit Sales (total of sales xxx Sales returns (total of sales xxx
journal) returns journal)
Refunds to credit customers xxx Cash/cheques received from xxx
(from cash book) credit customers (from cash
book)
Dishonoured cheques (from xxx Discount allowed (total of xxx
cash book) discount column from cash
book)
Interest charged (from sales xxx Bad Debts (from journal) xxx
journal)
Bad Debts recovered (from xxx Cash from bad debts recovered xxx
journal) (from cash book)
Balance c/f (total of credit xxx Set off – purchase ledger (from xxx
balances in sales ledger) journal)
Balances c/f (total of debit xxx
balances in sales ledger)
xxx xxx

Purchases Ledger Control Account

$ $
Balance b/f (minority) xxx Balances b/f (majority) xxx
Purchase returns (total of xxx Credit purchases (total of xxx
purchase returns journal) purchases journal
Cash / cheques paid to xxx Refunds from suppliers (from xxx
suppliers (from cash book)
Discount received (total of xxx
discount column from cash
book)
Set off – sales ledger (from xxx
journal)
Balance c/f (total of credit xxx
balances in purchase ledger)
xxx
cash book)
Interest charged by suppliers xxx
(from purchases journal)
Balance c/f (total of debit xxx
balances in purchase ledger)
xxx

Reconciliation of Control Accounts: When there is a difference between the balance

on a control account and the total of the balances in the ledger it controls, the causes
must be found and the necessary corrections made. This is known as reconciling the
control accounts. It is helpful to remember the following:

♦ If there is an error in the books of prime entry, the control account will be
incorrect but the sales or purchase ledgers will not be affected. It will be recorded
in the adjusted control account. For example, sales journal is overcast by $
1000.

♦ If there is an error in the individual accounts of debtors and creditors then it

will be recorded in the reconciliation statement. For example, sales for $ 1500
has been entered correctly in the sales journal but has been entered in the
customer’s account as $ 150.

♦ If there is an error in the Totals then the control accounts are affected as control
accounts included the information in total form. For example; Total discount
allowed overstated by $500.

♦ Look for PLURAL WORDS like ACCOUNTS or BOOKS, it’s an error of omission
and will be recorded in both, not only in the adjusted control account but also
in the Reconciliation statement. For example, a Sales invoice had been
completely omitted from the books.