Types of Control Accounts
1. Receivable Control Account;
2. Payable Control Account
Control accounts represents:
A total value of a number of separate receivable/payable balances.
To check arithmetical accuracy of sales/purchase accounting system
To facilitate in locating errors in sales/purchase accounting system
To provide instant balance of receivables/payables for final account preparation
Control accounts are a part of double entry accounting system. Control accounts are maintained in nominal ledger.
Control accounts helps in preparation of financial statements and help determination of financial position of entity at any point in time.
All accounts are assumed as control accounts, unless it is specifically told otherwise.
Other accounts are memorandum (informal) accounts that are not a part of double entry accounting system. It means it is not required by company law 2006 UK.
Memorandum accounts are accounts maintained as a part of internal control system. Memorandum accounts are included in subsidiary ledger.
Memorandum accounts or Subsidiary ledgers are used to maintain relationships with customers and suppliers.
Most commonly used subsidiary ledgers are:
- Receivable ledger
- Payable ledger
- Inventory ledger
- Fixed asset register
- Receivable ledger-Receivable ledger includes list of individual customer accounts
- Payable ledger-Payable ledgers includes list of individual supplier accounts.
Subsidiary ledger can be reconciled with control account. Reconciliation is identifying, detecting and correcting discrepancies (differences) between subsidiary ledger and control account.
Sum of individual account balances in subsidiary ledger must be equal to account balance in control account. Control accounts are used to post totals from daybooks at frequent intervals such as daily, weekly, monthly basis on depending on volume of transaction in the entity.