CONTROL ACCOUNTS — MEANING, ADVANTAGES AND LIMITATIONS

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A control account is an account used to record the aggregate balances of multiple subsidiary accounts.

It is a summary of the total of the customer's or suppliers' ledger.

The control account is also a general ledger account that only contains summary accounts.

The details for each control account can be found in the subsidiary ledger 

Control accounts are usually created for recording the summarized balance of individual ledgers kept for various parties.

Hence, in normal circumstances, the balance of the control account would equal the sum of the balances of the individual accounts of the various parties.

A control account is a self-balancing ledger/memorandum account that serves as a summary/total of individual accounts maintained in the ledger

There are two major types of control account

1. Sales control account

2. Purchases control account 

Importance of Control Accounts

1. Reduce the risk of fraud: Control accounts are usually prepared under the supervision of responsible officers and are kept separate from the individual ledger accounts maintained by Clerks.

Control accounts make it harder to commit fraud because different staff maintains control account record and subsidiary ledger independently

2. Error detections: Control accounts can be used to locate and detect errors as they are localized to the specific ledger (s).

Stated differently, control accounts can be used to detect errors relating to debtors and creditors because such errors can be easily traced to a set of accounts (or specific ledger to which they relate)

Moreover, if the control accounts do not balance, it is a sign that errors have been made in the respective ledger

3. Useful for policy formulation: Controls accounts provide a summary of the transactions recorded in the various subsidiary ledgers, which aids management in policy formulation.

4. Checking mechanism: The control account can be used to check the arithmetical accuracy of accounts in the ledger separately.

Furthermore, the control account can serve as an internal check mechanism on the work of the sales and purchase ledger clerk

5. Reduces the size of the general ledger: Control account reduces the size of the general ledger.

This is because transactions are recorded in detail in the subsidiary ledger while only the aggregate sum is shown in the control accounts.

6. Encourages division of work: Control account encourages the division of work among bookkeepers as each subsidiary accountant may be handled by a different person

7. Quick preparation of trial balance: Control account allows for quick preparation of a draft trial balance as it provides instant information about the totals of a company's debtors and creditors.

8. Facilitates debtor and creditor management: Control accounts summarize information about an organization's debtors and creditors, thereby facilitating the management of trade receivables and payables.

9. Useful in single-entry bookkeeping: In a single entry system, control accounts are useful for obtaining missing figures.

This can assist with the preparation of financial statements based on single entry records.

10. Speed up the preparation of management account: Control accounts speed up the process of producing management account information by allowing the control account balance to be used without having to wait for the individual balances to be reconciled and extracted.

11. Grouping of homogenous accounts: The control account assists in the grouping of homogeneous accounts, making it easier to locate transactions of a similar nature.

Limitations of control account

1. Cannot detect all errors: Control account accounts cannot detect errors such as errors of compensation, and omissions.

And even when an error is detected, the control account does not exactly identify which ledger account may contain the error.

Moreover, Some other errors may be made while locating errors in the control account.

2. May not be thoroughly scrutinized: If the control account is not thoroughly scrutinized, the control account may contain more errors.

3. Lack of details: Control accounts lack details as it is only a summary account. This makes it unsuitable for detailed analysis.

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