Control Accounts

Use of Control Accounts

In a small business the accounts can be kept in one accounting general ledger and a trial balance can be extracted from that ledger. In a larger business, where the transactions are too many to be managed by one person, subsidiary ledgers such as the accounts receivable ledger (sales ledger) and the accounts payable ledger (purchase ledger) will be opened. The subsidiary ledgers are now part of the double entry system, and to extract a trial balance it would be necessary to collect information on the balances from each of the ledgers. In order to avoid this situation, control accounts are maintained in the general ledger for each of the subsidiary ledgers.

Advantages of Control Accounts

Control accounts are mainly used to help identify errors in the subsidiary ledgers, but the use of them gives a business a number of additional advantages.

  • Control accounts allow a single trial balance to be extracted from the general ledger.
  • If the trial balance does not balance, only the accounts whose control account does not reconcile need to be checked for errors.
  • A different person can maintain the control account as a check against fraud.
  • Control accounts speed up the process of producing management accounts information as the control account balance can be used without waiting for the individual balances to be reconciled and extracted.
  • Control accounts reduce the amount of detail needed in the general ledger.

Control Account and the Double Entry System

There are two options when using control accounts as shown below, either are acceptable.

  • The subsidiary ledgers (Accounts receivable ledger, Accounts payable ledger) are considered part of the double entry system in which case the control accounts are only for information and are not part of the system. or
  • The control account is considered to be part of the double entry system and the subsidiary ledgers are for analysis only.

Posting of Control Accounts

The source of information for the control account postings are the books of prime entry:

  • Sales day book
  • Purchases day book
  • Sales returns day book
  • Purchases returns day book
  • Cash book

Control Account Posting Example

Using credit sales and the accounts receivable control account as an example, and assuming the control accounts are considered to be part of the double entry system and the subsidiary ledgers are for analysis only, the posting process would be as follows:

  • Details of each sale are recorded in the sales day book which is then totalled.
  • The total sales are recorded in the general ledger DR: Accounts receivable control account, CR: Sales
  • The sales day book entries are also recorded for analysis to the individual accounts receivable ledger accounts.
  • The total from the accounts receivable ledger and the accounts receivable control account are reconciled

What are the Main Control Accounts?

There are numerous control accounts which can be used, but the two main ones used by most businesses are the accounts receivable control account and the accounts payable control account.

Accounts Receivable Control Accounts

The information posted to the accounts receivable control accounts and the source of that information are shown in the table below.

Accounts Receivable Control Account Information Sources
Posting Dr / Cr Source
Opening balance Debit Accounts receivable ledger
Sales Debit Total credit sales from sales day book
Cash receipts Credit Total cash received from customers from cash book
Sales returns Credit Total from sales returns day book
Bad debts Credit Total from journal postings
Discounts allowed Credit Total from cash book
Closing balance Debit Accounts receivable ledger

Accounts Payable Control Accounts

The information posted to the accounts payable control accounts and the source of that information are shown in the table below.

Accounts Payable Control Account Information Sources
Posting Dr / Cr Source
Opening balance Credit Accounts payable ledger
Purchases Credit Total credit sales from purchase day book
Cash payments Debit Total cash paid to suppliers from cash book
Purchase returns Debit Total from purchase returns day book
Discount received Debit Total from cash book
Closing balance Credit Accounts payable ledger
Control Accounts November 28th, 2016Team

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