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Topic Seven. Control Accounts. Learning outcomes. After the end of this lesson, you should be in a position to, Describe control accounts Explain the importance of control accounts Draw sales control account Draw purchases control account

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Topic Seven

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Topic Seven

Control Accounts

Learning outcomes

  • After the end of this lesson, you should be in a position to,

    • Describe control accounts

    • Explain the importance of control accounts Draw sales control account

    • Draw purchases control account

    • Identify causes of differences between control accounts and subsidiary ledgers

Difference between errors and fraud

  • Topic 6 lessons

    • Accountants might make a number of errors in preparing financial statements

    • Difference between errors and fraud is just that whereas errors are unintentional, fraud is deliberate

    • Trial balance will not reveal all errors

    • An environment where errors are not easily identified is likely to have high instances of fraud

    • Control accounts are useful in detecting errors

Importance of control accounts

  • Help to identify errors either in subsidiary accounts or the control account

  • Due to segregation of duties between those handling control accounts and subsidiary ledgers, errors and irregularities might be identified

  • Reduces workload in preparing final accounts and hence preventing errors at year end.

Importance of control accounts

  • Identification of errors not revealed by the trial balance

  • Provides a check that sales and purchases are properly posted

Types of control accounts

  • Two categories

    • Sales control ledger

    • Purchases control ledger

Sales control ledger

  • A summary of all;

    • credit sales,

    • sales receipts,

    • sales returns

    • discount allowed

    • Interest surcharged to customers

    • Any other transaction that affects customer accounts

      See the next slide for an illustration of a sales control ledger

Sales control account

Sales control ledger

  • Totals of all individual customer account balances should agree with the sales control ledger

  • Differences should be reconciled on a regular basis

  • In the next slide we summarize some of the causes of differences

Causes of errors in sales control ledger

  • Completeness of the debtors listing. Some debtors could have been inadvertently omitted.

  • Some invoices might not have been posted in the control account.

  • Some credit might have been omitted in the control account.

  • Interest surcharges might not have been adjusted for in the respective customer’s accounts.

Causes of errors in sales control ledger

  • Receipts for items other than sales, for example proceeds on sale of equipments, could have been posted in the sales control.

  • Summation of subsidiary account balances might be inaccurate.

  • Clerical errors might have been made in balancing subsidiary accounts.

  • Duplicate invoices and receipts could have been made in the subsidiary accounts.

Sales control account

  • A careful review of the above will help one appreciate the vast benefits derived from a sales control account

  • To be useful;

    • Preparers should have no input on the books of original entry

    • Reconciliations should be done regularly

Purchases control ledger

  • Is a control account for purchases

  • Will contained transaction totals of accounts payables such as;

    • Purchase returns

    • Credit purchases

    • Payments to credit suppliers

    • Discount received

    • Any other transaction with accounts payable

  • Totals in this account should equal the sum totals of subsidiary accounts

Purchases control account

  • Differences between the control account and the subsidiary ledgers could be caused by;

    • Omission of credit notes in the control account or subsidiary ledgers

    • Misposting of payments

    • Misposting of purchase returns

Purchases control account

  • Misposting of invoices from suppliers

  • Clerical errors in recording transactions in the subsidiary accounts

  • Computational errors in determining totals in the subsidiary accounts or the control account.

Tips for purchase control ledger

  • Segregation of duties

    - Accountants in charge of the control account should not have an input in the purchase day books, purchase returns and other books of original entries relating to purchases

    - Reconciliations between the control account and subsidiary accounts should be done on a regular basis

Maintenance of control accounts

  • Sales and purchases control account could be part of the accounting system

    -Balances in these accounts are transferred to the trial balance

  • Controlaccounts could be maintained outside the general ledger as memorandum accounts

    - Balances in the control accounts are used to provide a control check over the subsidiary account. In this case balances in the subsidiary accounts are transferred to the genera ledger


  • Quality of information provided by control accounts depends on;

    • Frequency of the reconciliations

    • Segregation of duties

    • Review of reconciliations by a responsible company official

      Having well maintained control accounts will help not only to identify errors, but also deter frauds.


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