BDFA 2103

FINANCIAL ACCOUNTING II
TOPIC 4
Control Accounts
INTRODUCTION

The control account is an account that could act as a mini trial

balance, as well as, a summary of accounts.

It is an important account to check the arithmetical accuracy of a

ledger, and speed up the preparation of the final accounts
WHAT IS A CONTROL ACCOUNT?

A control account is an account created in a ledger that

summarises the entries and balances of all the accounts in the
same or another special ledger.

A control account also checks the accuracy of a ledger in manual

accounting systems
There are three types of ledgers

sales ledger,
purchases ledger
general ledger.

Big business use these subsidiary ledgers (sales ledger and purchases
ledger) to record their account receivables and payables.

If a control account is kept in a subsidiary ledger, the closing balances in

these control accounts can be used in a trial balance without having to
post all the individual balances into the trial balance
A control account can be divided into two parts

(a)Sales ledger control account;

used to represent the sales ledger whereas the latter control account represents the
purchases ledger. The sales/accounts receivable ledgers keep all the information on
each of the credit sales to customers, each customers remittance, return of
merchandise, discount, etc.

(b) Purchases ledger control account.

As for the purchases/accounts payable ledgers, it contains information on each credit

purchases from suppliers, payment made to suppliers, purchase returns, discount
received, and other transactions related to credit purchases.
Functions and Importance of Control
Account
 Benefits of Control Account
(a)Easy to trace the total values and
balances contained in the ledger
(b)Serve as trial balance for the subsidiary
ledgers. It only needs to take the totals
from the individual accounts in the
ledgers and compare them with the
totals in the control accounts. If there is
any difference, then there must be an
error or a group of errors
(c) Easy to locate errors and prove the
accuracy of the ledger. Errors in the trial
balance can easily be zeroed down to a
specific ledger, which makes them easier
to SELF
(d) Help to segregate the duties between the
accountant in charge of ledgers and another of
control accounts. This also helps to detect fraud, and
provides an effective control over the work in
preparing the books of accounts; and
SELF
(e) Speed up the preparation of final accounts. The
totals and balances in the control accounts that will
be used to prepare the financial statements are easy
to extract, compared to the aggregate balances
from the subsidiary ledgers
Principle of Control Account

A control account is not part of the double-

entry system. It is just a memorandum
account that looks like the T-account.

It is prepared either in the general ledger

on in the ledger to which it relates, i.e. the
purchases ledger or the sales ledger
Basic steps of preparing a sales ledger
control account
SOURCES OF INFORMATION FOR CONTROL
ACCOUNT

Sales Ledger Control Account

Purchases Ledger Control Account
ILLUSTRATION OF PREPARING A CONTROL ACCOUNT:
SALES LEDGER CONTROL ACCOUNT

 A sales ledger account is an account that summarises all the entries in the accounts
receivable in the sales ledger. This particular account is also known as the total accounts
receivable.

 A sales ledger control account is prepared in the general ledger at the end of each
month or each financial year that functions as a control account to the sales ledger
 ACCOUNT
SALES LEDGER CONTROL
The sales ledger is proved to be arithmetically
correct as the control account balance is the
same as the total of the balances extracted from
the sales ledger.

If the totals of the control account are not

equal, and the entries made in it from the
books of original entry have been correctly
extracted, then there might be an error in
the ledger.
ILLUSTRATION OF PREPARING A CONTROL ACCOUNT:
PURCHASES LEDGER CONTROL ACCOUNT

 A purchase ledger control account is an account summarising all the accounts

payables in the purchases ledger. This particular account is also known as the
total accounts payable. A purchases ledger control account is prepared in the
general ledger at the end of a particular period, based on the information (total)
from the books of original entry.

 Just like the sales ledger control account, the balance must be equal to the
balance of all accounts payables in the purchases ledger
There is a difference of RM216 between
the total of the debit and credit side of
the purchases ledger control account.

If the totals transferred from the

books of prime entry were
incorrectly made, then the
purchases ledger should be
checked thoroughly to find the
error
RECONCILIATION OF CONTROL ACCOUNT

 Errors and omissions common occur that make the ledger control account to be
not in balance.

 Further investigations need to be done to reveal the reasons behind them.

 Once they are discovered, reconciliation is carried out in order to verify whether
the identified item caused the failure to balance the control account
Example on how to reconcile a purchases ledger control account
The reconciliation is started with the original control account balance.

Information which had been omitted is one of the usual information that needs to be
added during the reconciliation.

On the other hand, the unnecessary information which had been posted wrongly to
the credit side of the purchases ledger account will have to be reversed out during
the reconciliation.

From the adjustments made, we will then arrive at an amended balance which
should be equal to the revised total of the source documents.

The amended balance is the new control account balance.