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Understanding Control Accounts in Accounting

Control accounts are general ledger accounts that summarize trade receivables and payables, ensuring the accuracy of the ledger accounting system. They facilitate quick totals for trial balances, help locate errors, and reduce fraud by separating the preparation of control accounts from ledger entries. Contra entries may occur when a business is both a customer and supplier, and control accounts can show minority balances due to various reasons such as overpayments or returns.

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124 views1 page

Understanding Control Accounts in Accounting

Control accounts are general ledger accounts that summarize trade receivables and payables, ensuring the accuracy of the ledger accounting system. They facilitate quick totals for trial balances, help locate errors, and reduce fraud by separating the preparation of control accounts from ledger entries. Contra entries may occur when a business is both a customer and supplier, and control accounts can show minority balances due to various reasons such as overpayments or returns.

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tjsuray
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CONTROL ACCOUNTS

- Control accounts are general ledger accounts that summarises all the
accounts of the trade receivable and trade payables.
- They are used to prove the accuracy of the ledger accounting system.
- Sales ledger control account summarises all the accounts of trade
receivables and purchases ledger control account summarises all the
accounts of trade payables.
- The books of prime entry are used as sources of information for the
control account entries.

Purposes of Control Accounts


1. To provide totals of trade receivables and trade payables quickly when
a trial balance is being prepared.
2. To assist in locating errors in the sales ledger and purchases ledger.
3. To reduce frauds as the control accounts are prepared by someone
who does not involve in making entries in those ledgers.

Contra entry in control accounts (Set-offs)


- If a business or person is both a customer and a supplier, a contra
entry may be made to transfer a balance from the sales ledger
account to the purchases ledger account.
- The double entry for this type of contra is:
Purchases ledger control account Dr
Sales ledger control account Cr

Minority balances in Control Accounts


Normally, trade receivable accounts have debit balances and trade payable
accounts contain credit balances.
The Sales Ledger control Account and Purchases Ledger control account
will have both the debit and credit balances brought down.

Reasons for the Sales ledger control account showing credit


balance
- An overpayment by the credit customer
- The customer returning goods after paying the amount
- The customer paying the amount in advance for the goods
- Cash discounts not being deducted before payment was made

Reasons for the Purchases ledger control account showing debit


balance
- An overpayment to the supplier
- returning goods t the supplier after paying the amount
- paying the supplier in advance for the goods
- Cash discounts not being deducted before payment was made

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