Control account is an account used to record the balances on a number of subsidiary accounts and to provide a cross-check on them
The following are reasons why control accounts are important in the business:
- Control account provide a check on the accuracy of entries made in the personal accounts in the receivables and payable ledgers. It is very easy to make a mistake in posting entries, because there might be hundreds of entries to make. Figures can be transposed. Some entries might be omitted altogether so that an invoice or a payment transaction does not appear in personal account as it should. By comparing the totals on the receivables/payable ledger, it is possible to identify that fact that errors have been made.
- To provide total receivables/payable balances more quickly for producing a trial balance or a statement of financial position as a single balance is extracted more simply and quickly than many individual balances in the receivable/payable ledgers.
- Where there is separation of duties, the control account provide an internal check. The person posting entries to the control accounts will act as a check on a different person whose job is to post entries to the receivables/payable ledger account.
- Control account also assist in the location of errors where posting are made daily, weekly or even monthly. If a person fails to record an invoice or a payment in a personal account or makes transposition error, it would be formidable task to locate the error or errors at the end of the year. By using the control account, a comparison with the individual balances in the receivables or payable ledger can be made for every week or day or month, and the error found much more quickly than if control account did not exist.