Control Account – SS2 Book Keeping Lesson Note (Second Term)

A control account is an account which records in total what has been entered in detail in the ledger account to which it relates.

Behavioural objectives

By the end of the lesson, students should be able to:

1. define a control account;
2. list the ledgers for which control accounts can be kept;
3. state the uses of a control account;
4. distinguish between the sales ledger control account and the purchases ledger control account;
5. determine sales and purchases ledger balances from given figures.

What is a control account?

A control account is a special account that shows the total balance of many related subsidiary accounts.

• Memorandum account: it is kept for checking and does not form part of the double-entry system.
• Totals only: it shows the total of entries, while the ledger shows each customer or supplier separately.
• Check on accuracy: its closing balance should agree with the total of the individual balances in the ledger.
• Source of figures: the totals come from the books of original entry, such as the sales journal, purchases journal and cash book.

Which ledgers have control accounts?

Control accounts can be kept for four ledgers: the sales ledger, the purchases ledger, the inventory ledger and the fixed assets ledger.

What are the uses of a control account?

A control account helps the business check the accuracy of its ledgers and control its debtors and creditors.

• Location of errors: if the control account and the ledger totals disagree, the error is in that ledger.
• Prevention of fraud: a different person keeps the control account, so it is hard to hide theft.
• Aids management control: managers get total debtors and creditors figures quickly.
• Internal check on the ledger clerk: the control account checks the work of the clerk who keeps the ledger.
• Easy detection of missing figures: a missing entry shows up as a difference between the totals.
• Ascertainment of debtors’ and creditors’ balances: the total owed by customers and to suppliers is found without adding every account.
• Preparation of information for final accounts: the totals are used for the statement of financial position.
• Saves time: the totals are checked at once, so each account need not be searched.
• Grouping of accounts: similar accounts are brought together under one total.

What are the types of control account?

There are two main control accounts: the sales ledger control account and the purchases ledger control account.

What is the sales ledger control account?

The sales ledger control account is the control account for the sales (debtors’) ledger.

• Other name: it is sometimes called the total debtors control account.
• Meaning: it shows all the entries posted to the sales ledger as if only one debtor existed.
• Normal balance: a debit balance, because customers owe the business.

Common items:

What is the purchases ledger control account?

The purchases ledger control account is the control account for the purchases (creditors’) ledger.

• Other name: it is referred to as the total creditors control account.
• Meaning: it shows all the entries posted to the purchases ledger as if only one creditor existed.
• Normal balance: a credit balance, because the business owes its suppliers.

Common items:

What is the difference between the two control accounts?

The sales ledger control account deals with customers who owe the business, while the purchases ledger control account deals with suppliers the business owes.

How do you find ledger balances from control accounts?

You find a closing balance by entering each figure on its correct side and subtracting the smaller total from the larger.

The following balances are extracted from the books of JKO Ltd for June.

On 30th June 19×3, it was discovered that a supplier was paid twice in error for ₦1,570. The amount was refunded on that date.

You are required to determine the sales and purchases ledger balances on 1 July 19×3.

Steps for the solution

1. Draw the sales ledger control account and enter the opening balance and credit sales on the debit side.
2. Enter returns inwards, cash received, discount allowed, bad debts and set-off on the credit side.
3. Subtract the credit total from the debit total to get the closing balance.
4. Draw the purchases ledger control account and enter the opening balance, credit purchases and the refund on the credit side.
5. Enter returns outwards, payments, discount received and set-off on the debit side.
6. Subtract the debit total from the credit total to get the closing balance.

Sales ledger control account

Sales ledger balance on 1 July 19×3: ₦43,940 (debit).

Purchases ledger control account

Purchases ledger balance on 1 July 19×3: ₦33,310 (credit).

Evaluation

1. Define a control account.
2. Name the ledgers for which control accounts can be kept.
3. State five uses of a control account.
4. Why is a control account called a memorandum account?
5. What is another name for the sales ledger control account?

Assignment

1. Explain the difference between the sales ledger control account and the purchases ledger control account.
2. Explain how a control account helps in the location of errors and the prevention of fraud.