Control account definition

purchase ledger control account

It is a part of the chart of accounts and it is used to record the journal entry for cash and credit purchases. It includes all stock related transactions which help a business to ascertain the amount of inventory available at any time. As we discussed earlier, this control account is prepared as an independent check on the arithmetical accuracy of the sales ledger (Debtors Ledger).

  • The practise of ensuring that the amount in the control accounts and the amounts in the general ledger match is known as ‘reconciliation’.
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  • If the closing balances of sales ledger control and the total of balances on the individual trade receivable accounts in the sales ledger agrees, we can presume that there are no errors or fraud occurred in the sales ledger.
  • Those subledgers are totaled for each reporting period, and the totals make up the balance of the accounts receivable control account.
  • An accounting ledger records transactions and helps generate financial statements for investors, creditors, or even regulators.

Therefore, it is a “short-term liability” for the business entity and forms part of the balance sheet. There are a couple of other entries which tend to appear in control accounts, namely irrecoverable or bad debts and contra entries. The reconciliation should be performed on a regular basis by the sales ledger clerk, then reviewed and approved by an independent person.

Purchase ledger control accounts in accounting

However, it records the money you receive for products and services you sell and what’s still owed. This then gets included in your annual accounts and on your balance sheet as accounts receivable. A company that sells products on credit may have many transactions in the accounts receivable subledger. The details of those transactions live in the subledger and the balance is reported to the control account. The control account for accounts receivable will only show the total amount that is owed to the company at a point in time without all the details of each customer’s transaction.

purchase ledger control account

If the balances differ, it indicate that there are errors in the individual trade receivables accounts in the sales ledger or in the control account. So to locate these errors, accountants need to check each and every trade receivables account in the sales ledger carefully until the error is found or the fraud is detected. The purchase ledger control account, or trade creditor control account, is part of the balance sheet and shows at any given time how much you owe to your suppliers. All of the individual transactions posted to your supplier ledger are included in this account, so any invoices, credit notes and payments are recorded. In the general ledger, there are hundreds of thousands of accounts including expenses, income, liabilities, and asset accounts.

Sales ledger control account

So, it will tell you the total collections and total receivables you owe from your customers. Simply put, as you know in large organizations there are numbers of customers as well as suppliers. So, if you record each transaction (account payable and account receivable) in the general ledger, it will become too difficult to manage your records easily.

If you need to view a specific transaction, you would need to access the appropriate subsidiary ledger in order to view the details. Again, all of this information is automatically completed if you use accounting software. For example, say company XYZ has extended credit to 3,000 clients. Listing each debtor account individual account would clutter a general ledger, so those accounts could be listed in a subledger and consolidated in a control account.

Advantages of a Control Account

These accounts cannot act as a deterrent against fraud unless internal checks can be carried out. These accounts can not guarantee
the arithmetical accuracy of the ledger. This website is using a security service to protect itself from online attacks.

These accounts can be implemented only in the businesses where the double entry system has been followed. However, the businesses which follow single entry system use control accounts to find the missing information. In order to ensure that the amounts in the sales control account add up, they are reconciled, typically by an accountant who can look into any discrepancies that might appear across the financial records of the business. A control account is used as part of the double-entry bookkeeping method, wherein a credit and debit entry are made for each transaction. There are several kinds of ledgers that you may use in the course of bookkeeping for your business. Most accounting software will compile some of these ledgers together while still letting you view them independently.

Format of a ledger

It can get confusing trying to understand all the different accounting processes and terms. So it’s understandable that a purchase ledger and a sales ledger can get mixed up. Thus, purchase ledger control account is credited if its balance increases & debited if its balance decreases.

purchase ledger control account

If there are any errors in these accounts, it is nearly impossible to locate these errors in a short period if the trial balance is the only controlling tool used to locate these errors. Also known as an accounting ledger, the general ledger serves as the record for a business’s financial data. This ledger is used to record each transaction and uses a trial balance to validate the information. With this ledger, a business can prepare its financial statements.

What Is Control Account?

Total purchase returns from the Return Outwards Day book (Purchase returns journal). She is a Business Content writer and Management contributor at, where she contributes a business article weekly. She has over 2 years of experience in writing about accounting, finance, and business. For example, Jim’s hardware store invoiced two customers for a total of $700. He also received a payment in the amount of $275 from a previous invoice.

  • This can be quite useful when a general ledger contains many accounts.
  • If you need to view a specific transaction, you would need to access the appropriate subsidiary ledger in order to view the details.
  • Because a cash book is updated and referenced frequently, similar to a journal, mistakes can be found and corrected day-to-day instead of at the end of the month.
  • A typical transaction entered into the purchase ledger will record an account payable, followed at a later date by a payment transaction that eliminates the account payable.
  • For smaller business organisations preparation of these accounts is not required.

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