IGCSE Accounting 0452 - 3.4 Control Accounts

Objective

To understand the purposes of Purchases and Sales control accounts.

What are Control Accounts?

Control accounts are summary accounts maintained in the general ledger to provide a quick overview of the balances in subsidiary ledgers. They help to simplify the general ledger and make it easier to understand the overall financial position of a business.

Purchases Control Account

The Purchases control account is a summary account in the general ledger that reflects the total purchases made by the business. It is linked to the Purchases ledger.

Purpose of the Purchases Control Account:

• Provides a summary of all purchases made during a specific period.
• Allows for easy comparison of actual purchases against budgeted purchases.
• Helps in identifying any discrepancies or unusual purchase amounts.
• Facilitates the preparation of financial statements by providing a consolidated figure for purchases.

How it works:

1. Each time a purchase is recorded in the Purchases ledger, the amount is posted to the Purchases control account.
2. At the end of the accounting period, the balance of the Purchases control account is transferred to the Income Statement as a cost of goods sold.

Sales Control Account

The Sales control account is a summary account in the general ledger that reflects the total sales made by the business. It is linked to the Sales ledger.

Purpose of the Sales Control Account:

• Provides a summary of all sales made during a specific period.
• Allows for easy comparison of actual sales against sales targets.
• Helps in identifying any discrepancies or unusual sales amounts.
• Facilitates the preparation of financial statements by providing a consolidated figure for sales revenue.

How it works:

1. Each time a sale is recorded in the Sales ledger, the amount is posted to the Sales control account.
2. At the end of the accounting period, the balance of the Sales control account is transferred to the Income Statement as sales revenue.

Example of Control Accounts

Account Name	Type
Purchases Control Account	Summary Account (General Ledger)
Sales Control Account	Summary Account (General Ledger)

These control accounts are essential for maintaining an organized and accurate general ledger.