Purpose of a Control Account (Cambridge (CIE) IGCSE Accounting)
Revision Note
Author
Dan FinlayExpertise
Maths Lead
Purpose of a Control Account
What is a control account?
A control account is a summary of all balances and transactions for trade receivables or for trade payables
A sales ledger control account summarises all the transactions for trade receivables
A purchases ledger control account summarises all the transactions for trade payables
The totals are found using the books of prime entry rather than the ledger accounts
This is so that errors in the ledger accounts can be easily identified
The closing balance is found for the control account and compared to the sum of the closing balances in the sales ledger accounts or the purchases ledger accounts
If there are no errors, these figures will be equal
What is the purpose of a control account?
To provide a summary of transactions for that type of account
A sales ledger control account gives a summary of all transactions with credit customers
A purchases ledger control account gives a summary of all transactions with credit suppliers
Do control accounts identify all errors?
Control accounts do not identify all errors
This is similar to the trial balance
The following errors are not identified
Errors of commission
Errors of omission
When a transaction is not entered into the books of prime entry
Errors of original entry
When a transaction is entered into the books of prime entry with an incorrect amount
Compensating errors
What are contra entries?
A person or business may be both a credit customer and a credit supplier
If a business owes some money to a person but is also owed money by that person then they can agree to offset the common balance
This is known as a contra entry
The offset is done without any exchange of money
The book of prime entry for contra entries is the general journal
Journal entries will be made with a narrative
Entries will then be made to the ledger accounts:
Debit the trade payables account
Credit the trade receivables account
Case Study
Aadam owes Brie $500. Brie owes Aadam $300.
Instead of paying each other $300, they agree to offset Brie's balance against Aadam's. This means they each reduce their balance by $300 without exchanging any money.
Aadam now owes Brie $200. Brie now does not owe any money to Aadam.
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