Preparation and Calculation of Control Accounts

Understanding Control Accounts

Control Accounts are managerial accounts which summarise detailed account information.
They are part of the double-entry bookkeeping system, which captures both sides of a transaction.
Common types include Sales Ledger Control Account and Purchases Ledger Control Account.
The role of control accounts is to act as an error-checking tool, ensuring that all the detailed ledger account entries are correct.

Debit Side: The debit side represents sales returns, cash and discounts received, and balances at the start of the period.
Credit Side: The credit side includes purchases returns, cash and discounts paid, and opening balances.
Any difference between the debit and credit sides gives the closing balance, which represents the amount payable or receivable.

Start by determining the opening balance of an account and enter this on the correct side (debit or credit).
Record transactions such as sales, purchases, returns, cash received, and cash paid in the appropriate section of the control account.
Calculate the total of debit and credit sides to determine the ending balance.

To calculate the ending balance in control accounts, draw a ‘T-account’ and label the debit and credit sides.
Enter each transaction on the correct side of the ‘T-account’, making sure to account for all transactions.
Subtract the total of the credit side from the total of the debit side to get the closing balance.
The remaining value determines the closing balance of a control account and is the balance carried forward to the next accounting period.

Accuracy Checks: Control accounts help confirm the accuracy of the sales ledger and purchase ledger.
Error Identification: They allow easier identification and correction of errors.
Protection Against Fraud: The system of control accounts provides an additional layer of security against fraud.

Complexity: The process of preparing control accounts can be complex for beginners.
Time-consuming: It can take quite a bit of time to prepare and maintain control accounts.
Potential for Errors: There’s a risk of errors if transactions are recorded on the incorrect side or are missed out.