Control Accounts

Sales Ledger Control Account:

Sales Ledger Control Account is a summary account which checks the arithmetical
accuracy of the Sales Ledger.  It enables us to see at a glance whether the general ledger
balance for the sales ledger agrees with the total of all the individual trade receivable accounts
held within the sales ledger.
Sales Ledger Control Account typically looks like a "T-Account" instead of containing
transactions related to one trade receivable (Debtor) it contains transactions related to all the
trade receivables (all the debtors) in the business.  As this control account contains the
summarized information of all the trade receivables accounts in the sales ledger, it is also called
as "Total Trade Receivables Account"("Total Debtors Account").

Sales ledger control account is generally prepared at the end of the financial year or "whenever"
it is required to check the arithmetical accuracy of the individual trade receivable accounts.

This control account is prepared as an independent check on the arithmetical accuracy of the
sales ledger (Debtors Ledger). So, we should not obtain the information required to prepare
this control account from the Sales ledger (Debtors ledger),instead all the information
required should be obtained from books of original entry or prime entry. 
Once the control account is prepared using the above format with the information obtained from
various books of prime entry/original entry, the total of balances on the individual trade
receivable accounts in the sales ledger should match with the closing balances on the Sales
ledger control account.

Source of information for Sales Ledger Control Account:

Reasons for opening and closing credit balances in the S L control
account:
Trade Receivables (debtors) accounts generally shows debit balance in the business books. This
balance represents money owed by the trade receivable (debtor) to the business. However
sometimes trade receivable (debtor) account may show a credit balance. It indicates business
owes money to the trade receivable.  It may happen due to one of the following reasons:

 An error in one of the individual trade receivables account.

 Over payment made by the credit customer (trade receivable).

 Advance payment by the trade receivable for the goods.

 Accountant forgot to deduct the cash discount before collecting the amount from the
credit customer.

 A Trade receivable returns the goods after making the full payment but he is not yet
refunded.

Purchases Ledger Control Account:

Purchases Ledger Control Account is a summary account which checks the arithmetical accuracy
of the Purchases Ledger.  It enables us to see at a glance whether the general ledger balance for
the purchases ledger agrees with the total of all the individual trade payable accounts held within
the purchases ledger
Instead of containing transactions related to one trade payable (creditor) it contains transactions
related to all the trade payables (all the creditors) in the business.  As this control account
contains the summarized information of all the trade payables accounts in the purchases ledger, it
is also called as "Total Trade Payables Account"("Total Creditors Account").
This control account is prepared as an independent check on the arithmetical accuracy of the
purchases ledger (creditors’ ledger). So, we should not obtain the information required to
prepare this control account from the purchases ledger (creditors ledger),instead all the
information required should be obtained from books of original entry or prime entry.
Once the control account is prepared using the above format with the information obtained from
various books of prime entry/original entry, the total of balances on the individual trade payables
accounts (creditors accounts) in the purchases ledger should match with the closing balances on
the Purchases Ledger Control account.

Source of information for Purchases Ledger Control Account:

Reasons for opening and closing credit balances in the P L control account:

Trade payables (creditors) accounts generally shows credit balance in the business books. This
balance represents money owed to the trade payables (creditors) by the business. However
sometimes trade payable (creditor) account may show a debit balance. It indicates trade payable
owes money to the business.  It may happen due to one of the following reasons:

 An error in one of the individual trade payables account.

 Over payment made to the credit supplier (trade payable).

 Advance payment to the trade payable for the goods.

 Accountant forgot to deduct the cash discount before paying the amount to the credit
supplier.

 Business returned the goods after making the full payment to the credit supplier but the
supplier has not yet refunded the amount.

Benefits of Control Accounts:

 These Accounts provide the instant information about the value of total trade receivables
and total trade payables. (Speedy calculation of summarized trade payables and trade
receivables.)

 These accounts help in locating the errors.

 These accounts reduces the voluminous information to be checked in case the trial
balance does not match and saves the time in locating the errors.

 These Accounts checks the arithmetical accuracy of the sales ledger and the purchases
ledger. 

 These accounts prevents the fraud in the business with separation of duties. As control
account is maintained by the middle or higher level supervisors or managers, it adds
another level of security within the accounting system.

 These accounts help in finding the missing figures and in the construction of financial
statements where accounts are kept in the single entry system. 

 These accounts provide information for financial statements and assists in preparing
financial statements quickly.

 These accounts checks and assess the efficiency of the staff.

Limitations of Control Accounts:

1.   These accounts cannot detect all types of errors.

2.   These accounts cannot guarantee the arithmetical accuracy of the ledger.

3. These accounts cannot act as a deterrent against fraud unless internal checks can be carried
out.

4.   These accounts do not provide the details of the transactions, but it only provides a summary
of each type of transaction.

5. These accounts can be implemented only in the businesses where the double entry system has
been followed.  However, the businesses which follow single entry system use control accounts
to find the missing information.

6. Incorporation of these accounts into the double-entry system is useful only when there are a
huge number of transactions in the business and when business maintains several ledgers in
theaccounting books. For smaller business organisations preparation of these accounts is not
required.