CONTROL ACCOUNTS
Control (or total) accounts are used mainly for debtors and creditors but they can also be used for stores, fixed assets and others. The balance of a debtors control account, at any time, represents the sum of the individual balances outstanding in the debtors' (or sales) ledger, and similarly the balance on a creditors' control represents the sum of the individual balances owing in the creditors' ledger.
Referring specifically to the sales ledger control account, the following points must be carefully noted:
The control account appears in the General Ledger.
Postings are made from the sales daybook to the debit of the individual debtors' accounts in the sales ledger. The same posting is made in total to the debit of the debtors' control account with a corresponding credit being posted to sales in the general ledger. So, it is obviously the control account that forms part of the system of double entry and because the same transactions are posted twice, the sales ledger cannot be part of the double-entry system, but serves purely as a memorandum record.
When payments are received from debtors, the cashbook is debited. Individual credits are posted to the debtors' balances in the sales ledger, and the sum of the credits is posted to the debtor's control account in the general ledger.
The benefits of operating control accounts can be summarised as follows:
Providing a check on the accuracy of entries made in the sales or purchase ledger, and assisting in the location of errors. Where there is a separation of duties, the control account performs the function of an internal control check on the person whose duty is the posting of the sales and purchase ledgers.
Providing a quickly ascertained balance to be included in a trial balance, instead of having to take out an extract of all the balances in the sales or purchase ledgers. This means also the general ledger can be kept to a manageable size, if the individual debtors or creditors balances do not form part of the double-entry system.
|
