Control Accounts and Its Uses
CONTROL ACCOUNTS AND ITS USES
INTRODUCTION: As the business grows in size, more than one ledger is required for recording its transactions which have also expanded with the business. Since the bulk of the entries are made in the accounts of debtors and creditors, these two classes of accounts are taken out of the General Ledger and put in separate ledgers - the Sales Ledger for debtors' accounts and the Purchases Ledger for creditors' accounts. There may be more than three ledgers but for simplicity, we shall limit the ledgers to three for the moment. The use of more than one ledger makes it possible to subdivide work and to obtain rapid accounting information when required.
When all accounts are kept in one ledger, a Trial Balance can be extracted to prove the arithmetical accuracy of the accounts therein. Any error revealed in the Trial Balance can be easily and quickly located since the number of entries in the ledger is comparatively less in a small business.
When several ledgers are used, it would be very tedious to look for any error revealed in an overall Trial Balance because we have to check all the ledgers before we can locate the error. If something like a sectional Trial Balance can be constructed for each ledger, then we only have to search for the error in the ledger whose Trial Balance totals do not agree.
It is obvious that the totals of a Trial Balance, extracted from any one of the three ledgers in use, will not agree since some of the accounts are missing. The debtors and creditors are missing from the General Ledger . To make the General Ledger complete by itself, two Control Accounts, one to take the place of all the debtors and one to replace all the creditors are constructed and incorporated within the General Ledger. The General Ledger is, therefore, made self-balancing by the use of Control Accounts, sometimes called Total Accounts.
WHAT IS A CONTROL ACCOUNTS
A control account is a summary account in the general ledger. The
INTRODUCTION: As the business grows in size, more than one ledger is required for recording its transactions which have also expanded with the business. Since the bulk of the entries are made in the accounts of debtors and creditors, these two classes of accounts are taken out of the General Ledger and put in separate ledgers - the Sales Ledger for debtors' accounts and the Purchases Ledger for creditors' accounts. There may be more than three ledgers but for simplicity, we shall limit the ledgers to three for the moment. The use of more than one ledger makes it possible to subdivide work and to obtain rapid accounting information when required.
When all accounts are kept in one ledger, a Trial Balance can be extracted to prove the arithmetical accuracy of the accounts therein. Any error revealed in the Trial Balance can be easily and quickly located since the number of entries in the ledger is comparatively less in a small business.
When several ledgers are used, it would be very tedious to look for any error revealed in an overall Trial Balance because we have to check all the ledgers before we can locate the error. If something like a sectional Trial Balance can be constructed for each ledger, then we only have to search for the error in the ledger whose Trial Balance totals do not agree.
It is obvious that the totals of a Trial Balance, extracted from any one of the three ledgers in use, will not agree since some of the accounts are missing. The debtors and creditors are missing from the General Ledger . To make the General Ledger complete by itself, two Control Accounts, one to take the place of all the debtors and one to replace all the creditors are constructed and incorporated within the General Ledger. The General Ledger is, therefore, made self-balancing by the use of Control Accounts, sometimes called Total Accounts.
WHAT IS A CONTROL ACCOUNTS
A control account is a summary account in the general ledger. The