What is a Control Account? Definition Meaning Example

Companies that sell products on credit may have many transactions in their accounts receivables sub-ledger. A sub-ledger contains details of those transactions, while a control account keeps track of the balance. In an accounts receivable control account, the total amount owed to the company at any given point in time is shown without the details of the transactions with each customer. In summary, a control account is a general ledger account that summarizes and consolidates the balances how to file your own taxes of multiple related subsidiary ledger accounts.

Balance Sheet

In that case, our confidence in the closing balance increases as these are reconciled. However, before using specific balance calculated, we need to apply control and ensure the accuracy of the balance. We need to apply control because these accounts are expected to have a massive number of transactions. The information posted to the accounts receivable control account and the source of that information are shown in the table below. Accounting software will automatically categorize data and create control accounts and subledgers, allowing for simple data segmenting, as well as accurate accounting practices.

A control account is a summarised account that maintains the records of the individual accounts in the ledger, and that is clarified and re-verified regularly. As a result of following this procedure, the management can create control over the ledger posting, which prevents the possibility of fraud and misrepresentation. In double-entry accounting, accounts receivable and accounts payable are the most commonly used control accounts. They can quickly verify the accuracy of the control account balances and then explore the subsidiary ledger if necessary.

Accounting Ratios

Control accounts are used to simplify financial reporting, ensure the accuracy of financial records, and enhance internal control within an organization.
Experienced in using Excel spreadsheets for her bookkeeping needs and created a collection of user-friendly templates designed specifically for small businesses.
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.
A control account is a summarised account that maintains the records of the individual accounts in the ledger, and that is clarified and re-verified regularly.
However, if Taylor or anyone else wants to find out the amount that a specific customer still owes for their credit purchases, or when they bought the item, that won’t be shown in the control account.
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.
Accounts Receivable refers to the money owed to a business by its clients or customers for goods or services provided on credit.

So, the control account equalizes all subsidiary accounts, and it helps simplify and organize general ledger account. Control accounts refer to general ledger accounts that summarize the detailed transactions from a subsidiary ledger or individual accounts. They act as centralized summaries, providing an overview of specific categories of transactions, such as accounts receivable or accounts payable. It is necessary that the ending balance of the subsidiary account is same as the control account, otherwise it can be assumed that the required entries have not been made in both the places properly.

Uses of Control Accounts

Control accounts, meanwhile, offer the opportunity for financial analysis by just showing the balances of each account. It’s basically a summary that provides clear and accessible insight into financial performance. Using a good accounting software package is the easiest way to view and amend control accounts.

Understanding Control Accounts in Context

Take a look at some of the reasons to use, and not to use, a control account. Therefore, the Purchase Ledger Control Account is a summary of the total amount owed to all suppliers. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

Recording Transactions

Control accounts are most commonly used by large organizations, since their transaction volume is very high.
Thus, in order to keep a proper record, you have to maintain control accounts and subsidiary accounts.
Thus, control accounts act as a safeguard against human error and deliberate fraud, enhancing the robustness of internal auditing.
To use control accounts effectively, organizations must first have a detailed and accurate breakdown of their financial transactions across sub-ledgers.
When monitoring your business’s general ledger, you may have an accounts receivable control account.
Whether tracking accounts receivable, accounts payable, or inventory, control accounts ensure transparency, internal control, and operational efficiency within organizations.
Smaller companies may be able to rely on control accounts if they remain balanced using double-entry accounting.

An important perspective to consider in management accounting is how the diligent and strategic use of control accounts can support sustainability. Given their capacity for streamlining financial processes and mitigating risks, controlling accounts can be crucial in advancing a company towards its sustainability goals. Another advantage of control post closing trial balance definition accounts is the principle of accountability they instill within an organization.

A practical example for the control account

The balance in a control account should be equivalent to the collective balance of linked subsidiary accounts. By creating a correlation between a control account and its subsidiary accounts, a company ensures that any discrepancies or errors can quickly be identified and rectified. A control or controlling account is a summary account in your general ledger. It keeps track of the total balances in related accounts, such as all your customer accounts (sales ledger) or supplier accounts (purchase ledger), within the general ledger account. In accounting, control accounts are helpful in double-entry bookkeeping systems where each transaction is recorded in two different accounts.

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. Another distinct advantage of having a control ledger is the how is a voucher used in accounts payable ability to prevent fraud.