Question

Nana, a petty trader does not see the need for control account being kept for debtors and creditors: As an accountant, He has approached you on the issue. i)Define the term control accounts (2 Marks) ii)Briefly explain four (4) benefits to be gained by Nana if he introduces control account in the ledger. (8 Marks)

Answer 1

A control account is a summary account in the ledger that is used to record and monitor the balances of a specific group of subsidiary accounts. Introducing control accounts can benefit Nana by improving accuracy, enhancing efficiency, enabling better financial analysis, and establishing effective internal control.

Step-by-step explanation:

i) Definition of control accounts:

A control account is a summary account in the ledger that is used to record and monitor the balances of a specific group of subsidiary accounts, such as debtors or creditors. It acts as a control mechanism to ensure that the total of the subsidiary accounts matches the balance in the control account.

ii) Benefits of introducing control accounts for Nana:

1. Improved accuracy: By keeping control accounts, Nana can easily identify any discrepancies between the total of the subsidiary accounts and the balance in the control account, allowing for prompt correction of errors.
2. Enhanced efficiency: Control accounts provide a organized and systematic way of managing and monitoring the balances of debtors and creditors. This allows Nana to quickly access and retrieve relevant information, making the accounting process more efficient.
3. Better financial analysis: Control accounts provide a clear overview of the balances owed by debtors and to creditors, helping Nana analyze the financial position of the business. This information can be used to make informed business decisions.
4. Effective internal control: Control accounts help in establishing a system of internal control within the business. By regularly reconciling the subsidiary accounts with the control account, Nana can identify any irregularities or fraudulent activities, preventing potential financial losses.