- State the purposes of a control account
- State where each source of information in a control account is obtained from
- Prepare a trade receivable control account
- Prepare a trade payable control account
Understand what is a Control Account.
A control account is a ledger account. There are two types of control account - Trade receivable control account and Trade payable control account. Both accounts are found in the General Ledger.A control account records only the total amounts related to trade receivable and trade payable. For instance, a trade receivable control account records, among other things, the total credit sales and total credit sales returns, while a trade payable control account records, among other things, the total credit purchases and total credit purchase returns.
A trade receivable control account is also known as total trade receivables account. A trade payable control account is also known as total trade payable account.
Here is a sneak preview of how a control account works. Note that the video presents ledger accounts differently from our syllabus.
Understand the purposes of Control Accounts.
The total sales and total sales returns amount in a trade receivable control account should be equal to the sum of individual trade receivable balances in the sales ledger. The total purchase amount in a trade payable control account should be equal to the sum of individual trade payable balances in the purchases ledger.Having said that, this means that the purposes of Control Accounts are:
- To be an independent check on the individual trade receivable and trade payable accounts.
- To reduce overcrowding of very detailed sales and purchases information in the General Ledger.
- For easy and quick information about the total sales and purchases balances.
- For easier preparation of the Trial Balance and Balance Sheet.
- Discourage people from committing fraud if two separate persons prepare the individual trade receivable and trade payable accounts and control accounts respectively.
Identify the sources of information to prepare a Control Account.
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Source of information for Trade Payables Control Account |
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