3.4 Control Accounts

Control accounts are summaries of the balances from the books of prime entry. They provide a consolidated view of the transactions affecting specific asset, liability, equity, income, and expense accounts. Understanding control accounts is crucial for ensuring the accuracy and efficiency of the accounting process.

Purpose of Control Accounts

• To provide a summary of all transactions affecting a particular account.

• To facilitate reconciliation between the general ledger and the books of prime entry.

• To help in detecting errors and omissions in the books of prime entry.

• To simplify the preparation of financial statements.

Books of Prime Entry as Sources of Information

Control accounts are directly linked to the books of prime entry. The information from these books is used to update the control accounts.

Here's a breakdown of how each book of prime entry relates to a control account:

Book of Prime Entry	Control Account	Nature of Information
Sales Journal	Sales Control Account	Details of credit sales made. Includes date, customer, and amount.
Purchases Journal	Purchases Control Account	Details of purchases made on credit. Includes date, supplier, and amount.
Cash Book	Cash Control Account	Records all cash receipts and payments.
Petty Cash Book	Petty Cash Control Account	Records all transactions involving petty cash.
Rentals Journal	Rent Control Account	Details of rent paid. Includes date, landlord, and amount.
Payments Journal	Payments Control Account	Details of all payments made. Includes date, payee, and amount.
Receipts Journal	Receipts Control Account	Details of all money received. Includes date, payer, and amount.
Bank Reconciliation Statement	Bank Control Account	Reconciles the balance on the bank statement with the balance in the cash book.

Each entry in the books of prime entry is analysed and posted to the appropriate control account. This ensures that the control account always reflects the correct balance.

Example

Consider a credit sale to a customer for $100. This transaction would be recorded in the Sales Journal. The amount of $100 would then be posted to the Sales Control Account, increasing its balance.

Similarly, a payment made to a supplier would be recorded in the Payments Journal and posted to the Payments Control Account, decreasing its balance.

By using control accounts, accountants can maintain a clear and accurate record of financial transactions, making it easier to prepare financial statements and monitor the financial health of the business.