Central control

Andrew Harrington on the importance and preparation of master accounts

Control accounts are also known as master accounts, as they control a number of subsidiary accounts within the bookkeeping system. Most commonly two are prepared - the sales ledger control account deals with the accounts of credit customers and the purchases ledger control account with those of credit suppliers.

Double-entry in control accounts duplicates that in the subsidiary accounts, but uses totals rather than individual transactions. The check is that the control account balance should equal the total of balances in the subsidiary accounts.

For example, consider a company with four credit suppliers. On 1 July, opening balances (all credit) are:

 

On the same date, the purchases ledger control account shows a credit balance of £3,070. During the week to 7 July, the gross column of the purchases daybook shows the following:

 

Note that the gross column is used, representing amounts actually owed. During the same week, the cashbook shows the following:

 

Each purchase is credited to the supplier’s account in the purchases ledger, increasing the balance owed. Each payment and each discount is debited to the supplier’s account, reducing the balance. These entries are duplicated in the purchases ledger control account, using totals.

The accounts appear as follows:

 

A reconciliation statement is now prepared:

 

The total agrees to the control account, and this check is confirmed on the reconciliation (an auditor checking that the system has operated correctly can see that the check has been made).

Andrew Harrington runs www.teachmenow.net and is a lecturer and author