Control Accounts

Question 1

Benefits of Control Account

Answer 1

• Provide a check on the arithmetical accuracy of the ledger.
  The balance of each control account = Total of individual balances in each ledger.
  Errors in the ledger can be located quickly.
• Segregation of duties help in the prevention of fraud
  because members of staff who complete the control accounts are not involved in completing the purchases and sales ledger.
• Totals of TR and TP from control accounts can be determined quickly
  Aiding the preparation of the trial balance and financial statements
  Speedier as total entered in trial balance rather than individual balances.

Question 2

Why a debtor’s account might have credit balance?

Answer 2

• Customer has overpaid their sales invoice in error
• Customer paid in advance
• Not taking a discount
• Customer paid for the goods before returning them
• Credit note issued

Question 3

Effect on a business of not updating customers’ accounts in the sales ledger?

Answer 3

• Non-collection of debt would negatively impact cash balance
• Not collecting the right amount from credit customers

Question 4

Effect on a business of not updating suppliers’ accounts in the purchases ledger?

Answer 4

• May lead to overpaying suppliers
• Possible disputes with suppliers affecting deliveries

Question 5

Limitations of Control Accounts

Answer 5

• May still contain errors.
• Do not guarantee accuracy of individual ledger accounts
• Addition costs incurred hire specialist to verify accuracy