The purpose of control accounts
The reasons for having control accounts are as follows:
1. Check accuracy
They provide verification of the correctness of the entries made in the personal accounts in the sales ledger and the purchase ledger. It is very easy to make a mistake when posting entries because there can be hundreds of entries to make. The numbers may vary. Some records may be completely missed so that an invoice or payment transaction does not appear in the personal account as it should. Comparing:
o The total balance on the debtors’ account with the total sum of the individual balances on the personal accounts in the sales ledger.
o The total creditor account balance with the total of the individual personal account balances in the purchase ledger.
It is possible to identify the fact that mistakes have been made.
2. Location of errors
It can also help locate errors when posting to control accounts is done on a daily, weekly or even monthly basis. If an employee fails to record an invoice or payment to a personal account, or makes a mistake in a transaction, it will be a huge task to find the mistake or mistakes at the end of the year, say, given the hundreds or thousands of transactions during the year.
By using the control account a comparison can be made with the individual balances in the sales or purchases ledger for each week or day of the month and the error detected much more quickly than if the accounts did not exist.
3. For internal verification
Where there are separate clerical accounting duties, the control account provides an internal check. The person posting entries to the accounts will act as a check on another person whose job it is to post entries to the accounts in the sales and purchases ledger.
4. Easier and faster
To more quickly provide balances to debtors and creditors to prepare a trial balance or balance sheet. A single control account balance is obviously expected more easily and quickly than many individual balances in the sales or purchase ledger.
It also means that the number of accounts in a double-entry system can be limited to a manageable size, since personal accounts are merely memorandum accounts and control accounts instead provide the accounts required for the double-entry system.
#purpose #control #accounts