Controlling account Wikipedia

what is a control account

Find out how GoCardless can help you with Ad hoc payments or recurring payments. Simply we can say that it tells how much business owes to the suppliers of a business at a particular time period. It means the aggregate accounts payable are included in this control account.

3: Subsidiary Ledgers and Control Accounts

They reflect the balance of transactions noted in the corresponding subsidiary account. Sales ledger control account is also known as debtor control account or Trade debtor control account. It explicits total trade debtors of a business entity at a specific given period. Further, it elaborates the total amount owed by all customers in a given time frame.

Example of purchase ledger control account

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. Following are the accumulated balances of the figures that impact the ending balance of accounts receivables. 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. If you’re interested in finding out more about control accounts, then get in touch with the financial experts at GoCardless.

Trial Balance

The subsidiary ledger allows for tracking transactions within the control account in further detail. Individual transactions appear in both accounts, but only as an ending balance in the control account. More details such as where the money came from, who it came from and the date it was paid appear in the subsidiary ledger. In addition to catching errors, control accounts can also help you review the general ledger. When specific control accounts do not balance, you know that they need to be checked.

Control accounts are mainly used to help identify errors in the subsidiary ledgers, but the use of them gives a business a number of additional advantages. The other accounts for which control account can be used are equipment, machinery, and inventory of a business. Further, it’s advisable that a control account be prepared for the account balance with a higher number of transactions. However, these balances are in aggregate, and it’s difficult to trace the specific balances in the control account. So, to trace the balance of the specific party, we need to analyze the subsidiary ledger/party-wise ledger.

However, sometimes there can be no match between the closing balance in the control account and the total of the party-wise accounts. In this case, there are three possibilities of errors that include the following. Each party’s total is accumulated at one place, and a certain cost recovery method of revenue recognition balance is calculated to be used in the trial balance for the formation of financial statements. 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.

In order to avoid this situation the general ledger maintains control accounts for each of the subsidiary ledgers. Those subledgers are totaled for each reporting period, and the totals make up the balance of the accounts receivable control account. In other words, the accounts receivable control account reflects the total amount that a company is owed, while the its subledger shows how much each individual customer owes. The typical level of activity in a control account is on a daily basis. For example, all payables entered during one day will be aggregated from the subsidiary ledger and posted as a single summary-level number into the accounts payable control account.

A control account is used to check the numerical accuracy of the balances that are posted in general ledger accounts. It can find out mistakes and errors in personal or individual accounts. In other words, control account enables us to reconcile the aggregated balance of the subsidiary ledger with the total balance to be used in trial balance. For financial reports, the summary balances provided by the control accounts are generally all that’s needed for analysis. With accounting software, the process of creating control accounts and subledgers can be simplified.

Reasons for discrepancies include stock losses and gains yet to be “journaled” and the control account measures the differences and provides financial visibility and control of the value of those. If the discrepancy is significant, then actions such as stock counts can be triggered in order to validate stock and correct the balance sheet and clear the control account. We can analyze that the total balance in the payable ledger amounts to $345,000 and carried forward balance in the payable control account amounts to the same balance. Hence, we have reconciled the balances and can use this balance in the preparation of financial statements. A company that sells products on credit may have many transactions in the accounts receivable subledger. The details of those transactions live in the subledger and the balance is reported to the control account.

For example, “accounts receivable” is the controlling account for the accounts receivable subsidiary ledger. In this subsidiary ledger, each credit customer has their own account with its own balance. 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.

  1. Great accounting software has many of these features built in, making accounting easier on you.
  2. Since both are zero and match, it would not be necessary to prepare a schedule of accounts payable.
  3. The main use of a control account is to help identify errors that appear in the subsidiary ledgers.

Control accounting helps create streamlined financial reports, and can provide an additional verification step to ensure accuracy. For example, an accounts receivable control account must have a accounting definition subtotal which matches the customer balances in the sub ledger. If there is a discrepancy with these totals, then there is an error somewhere in the books which must be identified and corrected.

The people who would monitor these accounts are called control account managers. While this may seem small, it is still a task that has to be taken on. You don’t want the person in control of your general accounts in control of the control accounts, as well. In the illustration below, you can see a Book of Prime Entries, which serves as a source of information for the control accounts. As we can analyze, that carried forward balance of the control account is equal to the closing balance in the general ledger, totaling to $180,000. A control account can keep a general ledger from becoming choked with transactional detail.

what is a control account

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. The details of a control account will be found in a corresponding subsidiary ledger. The control account keeps the general ledger clean of details, but contains the correct balances used for preparing a company’s financial statements. When comparing the control accounts and subsidiary accounts, both ending balances should match. If the control account balance doesn’t match the subsidiary ledger, a mistake in calculations may have been made. The term control account refers to any summary account in the general ledger.

The ending balance in a control account should match the ending total for the related subsidiary ledger. If the balance does not match, it is possible that a journal entry was made to the control account that was not also made in the subsidiary ledger. In a small business the accounts can be kept in one accounting general ledger and a trial balance can be extracted from that ledger. The subsidiary ledgers are now part of the double entry system, and to extract a trial balance it would be necessary to collect information on the balances from each of the ledgers.

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