Control account is also called total account. It is define as the aggregate of all the balances in a particular class of ledger. There are three classes of ledger. There are sales ledger, purchases ledger and general ledger.
There is usually a control account for sales ledger and purchases ledger. There is also control account for certain items in the general ledger. Control account is a memorandum account and therefore, it is not part of the double entry principle.
TYPES OF CONTROL ACCOUNT
There is majorly two types of control account. Purchase ledger control account also called Total account payable control account and sales ledger control account also called Total account receivables control account.
SOURCE OF INFORMATION FOR SALES LEDGER CONTROL ACCOUNT
The items posted to the sales ledger control account not taken from the there corresponding ledger account. They are collected from their subsidiary books. For sales ledger control account, the information is collected from the totals of sales day book, memorandum column of the cash book, and few from ledger account balances.
ITEMS SOURCE OF INFORMATION
Opening and clossing balances Sales ledger balances
On the debit side
Credit sales Sales Daybook
Dishonoured cheques Cash book
Bad debts recovered General Journal
Interest on debts General Journal
Cash redundant General Journal
On the credit sides
Return Inwards Return inwards Daybook
Receipt from debtors (Cash/ Bank) Cash book
Bad debts General Journal
Discount allowed Cash book
Set-off Sales ledger
SOURCES OF INFORMATION FOR PURCHASES LEDGER CONTROL ACCOUNT
The table below shows the sources of information from purchases ledger control account.
ITEMS SOURCES OF INFORMATION
Opening and closing balances Purchases ledger
On the debit side
Payments to creditors (cash/bank) Cash book
Return outwards Return outwards Daybook
Discount Received Cash book
Set-off/Contra Purchases ledger
On the credit side
Credit purchases Purchases Daybook
Cash refund Cash book
IMPORTANCE OF CONTROL ACCOUNT
1. IT AIDS THE WORK OF THE EXTERNAL AUDITOR
Instead of carrying out seperate verification, the auditor can rely on the control account to verify the ledger accounts.
2. CONTROL PURPOSES
The control account is usuallu prepared by a different accountant. The other accountant prepares the ledger accounts. This will aid control of the accounting system in the business.
3. FRUAD CONTROL
Control account can be used to detect when fraud occurs in the business. It can also be used to trace the fraud to the actual thief.
4. LOCATION OF ERRORS
5. FINANCIAL STATEMENT
Control account contains totals or aggregates of related transactions, therefore, items in it can be used to prepare a financial statement.
6. INCOMPLETE RECORDS
The control account can be used to find incomplete records. Were a business do not have a complete accounting system, control account can be used to find the remaining items needed to prepare the financial statement.