Definition and Purpose of Control Accounts
Definition and Purpose of Control Accounts
Definition of Control Accounts
- A control account is a general ledger account that summarises and checks the accuracy of detailed records.
- Control accounts serve as a checking mechanism, aggregating subsidiary ledger data.
- They typically represent summary-level data relating to a specific aspect of business spending or income.
- Examples of control accounts include Accounts Receivable Control, Accounts Payable Control, Stock Control and Bank Control.
Purpose of Control Accounts
Ensuring Data Accuracy
- Control Accounts help to verify the accuracy of financial data in the subsidiary ledgers.
- They provide a means to identify errors or discrepancies in the financial records.
- By comparing control account balances with subsidiary ledger balances, discrepancies can be detected and rectified.
Posting Efficiency
- Control accounts contribute to efficiency in posting transactions by grouping similar items.
- They reduce the need for individual entries in the main ledger, thus saving time and reducing the scope for error.
Management Information
- Control accounts offer valuable insight for management.
- They provide summary-level data on significant aspects of business finance which can inform decision-making.
Locating Errors
- Control accounts can assist in locating errors in financial records.
- Where an imbalance between the control account and its associated subsidiary ledger arises, the issue can be traced back to specific entries for rectification.
Safeguarding Assets
- Control accounts play a crucial role in safeguarding a firm’s assets.
- By offering ongoing oversight of key financial areas, control accounts help prevent loss, theft or fraudulent activity.
Division of Duties
- Use of control accounts supports a division of duties in an organisation.
- While one person might be responsible for detailed record keeping, another would be authorized to update control accounts, providing a built-in audit mechanism.