3 Control Accounts Questions

by Sameera
(Mauritius)

Mauritius sunset

Mauritius sunset


Q: (1) Explain the ways in which control accounts can be of use to the management of a business.


(2) Outline the usefulness of these accounts.

(3) State why a sales ledger control account may have both a debit and a credit closing balance.


A:
(1) Management uses control accounts to reduce input errors. The accountant or bookkeeper compares the totals in the control accounts to the totals of all the individual accounts in the debtors and creditors ledgers.

(2) Same as above. For example, the balance in the debtor control account should match the total of all individual debtor accounts in the debtors ledger. This lack of discrepancy between the two indicates that there are probably no errors in these accounts.

(3) A "sales ledger control account" is the same as the debtors control account. It's essentially a control account to compare against your debtors ledger.

Since this is the total of one's debtors, and debtors are assets, it normally has a debit balance.

A credit balance is highly unlikely. However, this could occur if there was an error or if you owed one of your debtors for something. In other words, usually they might be debtors in your records as they owe you for sales you regularly make to them, but maybe you bought something from them for once and so actually owe them. This would then create a credit balance and their account should actually be classified as a creditor or liability (debt account).

Best,
Michael Celender


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Correction - Sales Ledger Control Account
by: Taneika

Part C where you said sales ledger control account means creditors control. that is not right.

Sales ledger is used to record personal accounts of debtors... therefore another name for it is receivable control account or debtors control account.

Purchases ledger is used to record personal accounts of creditors (who a business purchases from on credit)... therefore another name is creditors control account or payables control account.

However your explanation is correct, a sales ledger control account will usually have a debit balance to signify that the customer owes the business but sometimes this control account will also have a credit balance which would mean that the business also owes the customer.

Hi Taneika,

You are totally right! Good catch! It was a silly mistake - I must have been half asleep when I answered this or something :-/

Sales have to do with debtors (receivables), not with creditors!

The debtors control account and the sales ledger control account are two names for the same thing.

I'd like to offer you a little gift as a thank you for spotting this mistake. Feel free to message me directly through the website and I'll send you a free e-book.

Regards,
Michael C.
Accounting Basics for Students

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