Control Accounts

They are especially important for reconciliation in large companies with a high volume of transactions when only the balance of the account is needed. Control accounts work as a summary account, presenting the balance of the subsidiary accounts without including the transaction details. Companies using a control account typically post balances from the subsidiary ledgers daily to make sure that they’re always in balance.

As you can see, control accounts drastically clean up the ledger and make it easier for accountants and bookkeepers to use. Because control accounts summarize information in subsidiary ledgers, they should always remain in balance. If at any time the control account and the subsidiary ledger are not in balance, the subsidiary ledger will need to be reconciled to locate and correct the error. A common example of a control account is the general ledger account entitled Accounts Receivable.

Controlling account

If the control account balance doesn’t match the subsidiary ledger, a mistake in calculations may have been made. Control accounts are meant to keep a company’s general ledger clean of details. They still need to have the correct financial information needed to prepare the company’s financial statements. Control accounts are clean entries that match overall amounts in more detailed ledgers. This way the ledger only has one accounts receivable account instead of hundreds. If more information is needed for a specific customer, the subsidiary accounts and records can always be reviewed.

Once different accounting entries are posted in the books, different ledgers are created that help to set structured and complied data related to different business operations. Listing each debtor account individual account would clutter a general ledger, so those accounts could be listed in a subledger and consolidated in a control account. Jim doesn’t need to post the details of any of the transactions since the details are already recorded in the subsidiary ledger.

Thus, while the “accounts receivable balance” can report how much the company is owed, the accounts receivable subsidiary ledger can report how much is owed from each credit customer. In accounting, the controlling account (also known as an adjustment or control account[1]) is an account in the general ledger for which a corresponding subsidiary ledger has been created. The subsidiary ledger allows for tracking transactions within the controlling account in more detail. Individual transactions are posted both to the controlling account and the corresponding subsidiary ledger, and the totals for both are compared when preparing a trial balance to ensure accuracy.

Trial Balance

Invoices that have been created, customer payments, product returns, refunds, and credit memos posted in the various accounts receivable ledgers will all be included in the accounts receivable control account. It contains aggregated total for the transactions that are posted in the subsidiary ledger. It is also called a controlling account because it enables us to perform reconciliation control on the ending balance. When comparing the control accounts and subsidiary accounts, both ending balances should match.

When monitoring your business’s general ledger, you may have an accounts receivable control account. The control account will only show you the accounts receivable balance after all calculations have been done. It will include end amounts for things like total credit sales, collections from customers, and the total amount still owed.

1. A control account is used to check the numerical accuracy of the balances that are posted in general ledger accounts.
2. Most commonly, control accounts are used for two areas within a company.
3. In that case, our confidence in the closing balance increases as these are reconciled.
4. As only a section of the accounting system is self balancing such a system if sometimes referred to as a sectional balancing system.
5. Further, it’s advisable that a control account be prepared for the account balance with a higher number of transactions.
6. While subsidiary accounts are critical for recording a company’s transactions, control accounts allow for high-level analysis by simply focusing on the balances of each account.

What Are the Subsidiary Ledgers For?

In that case, our confidence in the closing balance increases as these are reconciled. In other words, control account enables us types of tax accounting methods to reconcile the aggregated balance of the subsidiary ledger with the total balance to be used in trial balance. The information posted to the accounts payable control account and the source of that information are shown in the table below. The information posted to the accounts receivable control account and the source of that information are shown in the table below.

Balance Sheet

So, the control account equalizes all subsidiary accounts, and it helps simplify and organize general ledger account. Once we have reconciled the balance of accounts receivables in the general ledger with accumulated movement of the accounts receivable (control account), we can reliably use the ending balance to prepare financial statements. The balance of the control account should always be equal to the balance in the subsidiary ledger accounts. Accounts payable and accounts receivable control accounts are the most frequently used control accounts, although inventory and fixed asset control accounts can also be used. The general ledger account that sums the subsidiary accounts is said to control the balances that are reported in the ledger. This makes sense because the subsidiary accounts are not directly reported in the GL.

The details for each control account will be found in a related (but separate) subsidiary ledger. For more details regarding each of these subjects, you’ll have your subsidiary ledger. Here you’ll find specific details like how much a customer still owes, or when purchases were made. The resulting ended balance will still match that of the control, however.

Control accounts are an important component of double-entry accounting and make up the foundation of the general ledger. They serve as a summary report of the total balances for each subledger, and allow for a streamlined analysis of a company’s balance sheet without all of the clunky details contained in each subledger. A control account is used to check the numerical accuracy of the balances that are posted in general ledger accounts.

Example of Control Accounts

Now, we are confident in the accuracy of the receivable racine county visitor’s bureau suing mount pleasant over hotel tax dollars balance and can be used to form a financial statement. It’s important to note that the control account balance does not impact the figures in the trial balance and financial statement. To do so, we get accumulated balances that affect the movement of accounts. For instance, Accounts payable is effected by credit purchases, payment made to the supplier, purchase returns, and discounts received. In the accounting cycle, the first step is posting entries in the books of accounts.

The only real issue with a control account is that it forces anyone investigating a transaction to shift down to the referenced ledger to find the transaction in question. This can slightly increase the time required to investigate a transaction, but it is not a critical concern. A control account can keep a general ledger from becoming choked with transactional detail.

He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. Control accounts could also be used for accounts payable, equipment, and inventory. There are two options when using a control account as shown below, either are acceptable.