What is meant by control accounts ? If you want to introduce control accounts in your company, what accounts would you institute and from what sources would the entries be derived ?
Answers
A control account summarizes a set of subsidiary accounts. Large businesses use it to minimize the summary postings in the general ledger. Instead, enterprises record all the transaction details in a separate subsidiary ledger. Such actions mean that there is no need to reconcile and extract individual accounts to get account information because the company can refer to the control account balance.
Provides a checking mechanism to detect errors and fraud at an early stage;
Removes bulky details from the general ledger;
Larger companies can set up accounting departments for specific areas;
Trial balance figures provide a summary of totals, rather than individual accounts;
Minimize the likelihood of fraud because different staff independently maintains control account records and subsidiary ledger.
Businesses can use control accounts in two different ways:
They can be an integral part of a double-entry system. Businesses use General ledger to keep the debtors and creditors control accounts. They use personal accounts as subsidiary records for analysis only, and the Sales and Purchases Ledgers are memorandum books.
Businesses can also use control accounts to extract information from them. In this case, the subsidiary ledgers become a part of the double-entry system.