1. Topic Seven
Control Accounts

2. Learning outcomes
After the end of this lesson, you should be in a position to,
Describe control accounts
Explain the importance of control accounts Draw sales control account
Draw purchases control account
Identify causes of differences between control accounts and subsidiary ledgers

3. Difference between errors and fraud
Topic 6 lessons
Accountants might make a number of errors in preparing financial statements
Difference between errors and fraud is just that whereas errors are unintentional, fraud is deliberate
Trial balance will not reveal all errors
An environment where errors are not easily identified is likely to have high instances of fraud
Control accounts are useful in detecting errors

4. Importance of control accounts
Help to identify errors either in subsidiary accounts or the control account
Due to segregation of duties between those handling control accounts and subsidiary ledgers, errors and irregularities might be identified
Reduces workload in preparing final accounts and hence preventing errors at year end.

5. Importance of control accounts
Identification of errors not revealed by the trial balance
Provides a check that sales and purchases are properly posted

6. Types of control accounts
Two categories
Sales control ledger
Purchases control ledger

7. Sales control ledger A summary of all; credit sales, sales receipts,
sales returns
discount allowed
Interest surcharged to customers
Any other transaction that affects customer accounts
See the next slide for an illustration of a sales control ledger

8. Sales control account XX Company Limited Sales control Account
For the period ended XX
Outstanding invoices at the beginning of the period XX
Add:-Total sales for the period
Any interest charges on overdue accounts
Less:-Receipts
(XX)
Sales returns
Discount allowed
Balance at year end

9. Sales control ledger
Totals of all individual customer account balances should agree with the sales control ledger
Differences should be reconciled on a regular basis
In the next slide we summarize some of the causes of differences

10. Causes of errors in sales control ledger
Completeness of the debtors listing. Some debtors could have been inadvertently omitted.
Some invoices might not have been posted in the control account.
Some credit might have been omitted in the control account.
Interest surcharges might not have been adjusted for in the respective customer’s accounts.

11. Causes of errors in sales control ledger
Receipts for items other than sales, for example proceeds on sale of equipments, could have been posted in the sales control.
Summation of subsidiary account balances might be inaccurate.
Clerical errors might have been made in balancing subsidiary accounts.
Duplicate invoices and receipts could have been made in the subsidiary accounts.

12. Sales control account
A careful review of the above will help one appreciate the vast benefits derived from a sales control account
To be useful;
Preparers should have no input on the books of original entry
Reconciliations should be done regularly

13. Purchases control ledger
Is a control account for purchases
Will contained transaction totals of accounts payables such as;
Purchase returns
Credit purchases
Payments to credit suppliers
Discount received
Any other transaction with accounts payable
Totals in this account should equal the sum totals of subsidiary accounts

14. Purchase control Account
XX Company Limited
Purchase control Account
For the period ended XX
Opening bal. Of outstanding suppliers invoices XX
Add:-Total credit purchases for the period
Any additional costs such as transport
Less:-Payments
(XX)
Purchase returns
Discount received
Balance at year end

15. Purchases control account
Differences between the control account and the subsidiary ledgers could be caused by;
Omission of credit notes in the control account or subsidiary ledgers
Misposting of payments
Misposting of purchase returns

16. Purchases control account
Misposting of invoices from suppliers
Clerical errors in recording transactions in the subsidiary accounts
Computational errors in determining totals in the subsidiary accounts or the control account.

17. Tips for purchase control ledger
Segregation of duties
- Accountants in charge of the control account should not have an input in the purchase day books, purchase returns and other books of original entries relating to purchases
- Reconciliations between the control account and subsidiary accounts should be done on a regular basis

18. Maintenance of control accounts
Sales and purchases control account could be part of the accounting system
- Balances in these accounts are transferred to the trial balance
Control accounts could be maintained outside the general ledger as memorandum accounts
- Balances in the control accounts are used to provide a control check over the subsidiary account. In this case balances in the subsidiary accounts are transferred to the genera ledger

19. Conclusion
Quality of information provided by control accounts depends on;
Frequency of the reconciliations
Segregation of duties
Review of reconciliations by a responsible company official
Having well maintained control accounts will help not only to identify errors, but also deter frauds.

20. Questions
Q&A