CONTROL ACCOUNTS

DEFINITION
• Control accounts are also known as total accounts. The double entry is in the individual
accounts.

PURPOSE
• Control accounts facilitate the discovery of errors
• Control accounts also serve to guard against fraud, as different people are responsible for the
keeping of different ledgers.
• Control accounts provide the total figures for the preparation of the final accounts.

TYPES OF CONTROL ACCOUNTS

1. Sales ledger control accounts (Trade receivable/Debtors control accounts)
2. Purchases ledger control accounts (Trade payable/Creditors Control accounts)

FORMATS
• Source of information for the Trade Receivable (Debtors) Control Account
o The debit side shows the total amounts owed by the debtors.
o The credit side shows total amount received and the total amount reduced
o The total figures are obtained from the various daybooks.

Trade Receivable (Debtors) Control Account

Trial balance at close of
previous balance Balance b/d Cash Cash Book
Sales Journal Credit Sales Bank (Cheques received)
Cash Book
Cash Book Dishonoured Cheques
(Unpaid Cheque) Discount allowed Cash Book
General Journal Discount allowed Return Inwards and Sales Return Journal
withdrawn allowance
General Journal Any charges to debtors Bad debts General Journal
(i.e. Interest charged to
Contra/Transfers General Journal
debtors)
Balance c/d

• Source of information for the Trade Payable (Creditors) Control Account

o The credit side shows the total amounts owed to the creditors.
o The debit side shows total amounts paid and the total amounts reduced.
o The total figures are obtained from the various daybooks.
 Trade Payable (Creditors) Control Account
Trial balance at close of
Cash Book Cash Balance b/d previous balance

Cash Book Bank (Cheques paid) Credit Purchases Purchases Journal

Any charges by
Cash Book Discount Received Creditors (i.e. Interest General Journal
charged by Creditors)
Purchases Return Journal Return Outwards

General Journal Contra/Transfer

Balance c/d

• Contra/Transfers – It occurs when the credit customer also sells on credit to the business.
Hence, he is both a Trade receivable and a Trade payable. Instead of exchanging Cheques,
they are set off against each other.

Sam (Trade receivable) Sam (Trade payable)

contra $ contra $

• Balances on Both Sides of a Control Account

1. Occasionally a debtor’s account may show a credit balance. This may occur due to the
following factors:
a) An overpayment by the debtor
b) The debtor returning goods after paying the account
c) The debtor paying in advance for the goods
d) Cash discount not being deducted before payment.

Trade Receivable (Debtors) Control Account

$ $
Balance b/d [larger amount] Balance b/d [smaller amount]

2. In a similar way, a creditor’s account can show a debit balance. This may occur due to
the following factors:
a) An overpayment to the creditor
b) Returning goods to the creditor after paying the account
c) Paying the creditor in advance for the goods
d) Cash discount not being deducted before payment was made.

Trade Payable (Creditors) Control Account

$ $
Balance b/d [smaller amount] Balance b/d [larger amount]
Question : State the uses/benefits of control accounts.

1. Reduce the possibility of fraud / prevent frauds. / 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.
2. Checking the arithmetical accuracy.
3. To locate or prevent errors.
4. Calculate the total value of trace receivables (debtors) and/or total value of trace payables
(creditors).
5. To calculate trade receivables (debtors) and/or total value of trade payables (creditors) used in trial
balance / and / or final accounts.
6. Measures staff efficiency / These accounts checks and assess the efficiency of the staff.
7. 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.
8. These accounts help in finding the missing figures and in the construction of financial statements
where accounts are kept in the single entry system.

Question: Suggest the limitations to the usefulness of control accounts approach to record-keeping.

1. These accounts can not detect all types of errors.

2. Control accounts may themselves contain errors.
3. These accounts can not guarantee the arithmetical accuracy of the ledger. / Control accounts do not
guarantee the accuracy of individual ledger accounts, which may contain compensating errors, for
example items posted to the wrong accounts.
4. These accounts cannot act as a deterrent against fraud unless internal checks can be carried out.
5. These accounts do not provide the details of the transactions, but it only provides a summary of
each type of transaction.
6. 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.
7. 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 the
accounting books. For smaller business organisations preparation of these accounts is not required.