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.