Benefits of maintaining control accounts

Benefits of maintaining control accounts

If the control accounts are kept purely as memorandum records then they are not necessary for the double entry system to function fully. However the control accounts will still have some uses for the firm and these are as follows:

1. If the control accounts do not balance then it is obvious that a mistake has taken place in the respective ledger. This will save time in the locating of the error. If we relied on the trial balance alone then we would have to check all the three main ledgers as well as the cashbook.
2. Control accounts can be kept by a person who is not he same person who maintains the personal accounts of debtors and creditors. In this case, fraud is less likely to occur (unless both the ledger clerks and the person maintaining the control accounts are in collaboration together!).
3. The debtors and creditor figures can be ascertained more speedily for construction of the trial balance, than having to balance off each individual personal account in the sales and purchases ledgers.
4. Errors not affecting the trial balance
5. Given the many entries that are made in the ledger accounts, it is not surprising to know that errors will be frequently made when making these entries. Most firms, even if using computerised system will make mistakes in the double entry accounts. Fortunately, there are various ways in which an account can be checked or verified, such s the use of control accounts, bank reconciliation statements and the trial balance.
6. When errors are made, they will have an effect on the final accounts of the firm, possibly giving us an incorrect profit calculation. Understandably, it is important to correct these errors as soon as they are found.
7. In double entry bookkeeping, the trial balance can be used to check the accuracy of the ledger accounts. If the totals of the debit column and the credit column of the trial balance disagree (are not the same) then mistakes must have been made in the entries. However, even the totals agree (both columns total the same figure) mistakes may still have been made. There are various ways in which entries can be made which follows basic rules of double entry (one debit and one credit entry - both same amount) but still produce mistakes. The errors that do not affect the trial balance agreement are normally classified as follows:

Name of error	Description of error
1. Error of omission	Double entry is missed out (omitted) completely from ledgers.
2. Error of commission	One half of entry is made in wrong personal account.
3. Error of principle	One half of entry is made in wrong type of account.
4. Error of original entry	Incorrect amount is entered in both halves of entry.
5. Complete reversal of entries	Debit entry is credited and vice versa - in correct accounts and correct amounts.
6. Compensating error	Two or more errors cancel each other out in terms of their effect on the trial balance.

8. Once an error has been located, it will need to be corrected with both an entry in the journal (regardless of the original transaction) and also in the ledger accounts. The following examples, illustrate the errors and the method of correction.

10. When we refer to incorrect amounts being entered in accounts, we often use the words 'overcast' to refer to when too much has been entered in an account, and 'undercast' when too little has been placed in an account.