What is a Control Account?

In other QuickBooks 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. They show the balance of transactions detailed in the corresponding subsidiary account. For example, the “total sales” figure of $16,300 in the debtors control account above comes from the total in the sales journal below (which shows sales on credit). (i) Control accounts provide a summary of transactions recorded in various subsidiary ledger. The purpose of the control account is to keep the general ledger nice and clean without any details, yet contain the correct balances to be used in the financial statements.

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• Incorporation of these accounts into the double-entry system is useful only when there are a huge number of transactions in the business and when business maintains several ledgers in the accounting books.
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• £800 is added to the control account as it represents an increase in the total amount owed by all customers.

What are the advantages of using a control account?

Because the control account only reviews the end balance, there is less risk of miscalculation. If your accounts don’t match, it’s likely that the subsidiary ledger has the error. This can happen easily in things like the accounts receivable subsidiary ledger. The use of accounts receivable and accounts payable control accounts creates an accounting system where only the general ledger is self balancing. The subsidiary accounts receivable and payable ledgers have only one sided entries and therefore do not self balance. As only a section of the accounting system is self balancing such a system if sometimes referred to as a sectional balancing system.

Journal Entries

Hence, we have reconciled the balances and can use this balance in the preparation of financial statements. With the double-entry accounting system, accounts receivable, and accounts payable are the common types of control accounts. The control ledger is the summarized account maintaining the records of individual accounts involved in the ledger, and the same is clarified and re-verified. Following this procedure helps the management create a control on the controlling account ledger posting, which safeguards against the possible chances of misrepresentation and fraud. A control account is a general ledger account created to record the bulk transaction of the same nature and then summarize the balance.

Definition and Examples of Control Account

The general ledger can have hundreds of accounts from asset and liability accounts to income and expense accounts. More over, each account type can have hundreds of smaller accounts called subsidiary accounts. If every single account was included in the general ledger, it would be very large, unorganized, and difficult to use. That is why control accounts are used to summary data from large numbers of related accounts. An important perspective to consider in management accounting is how the diligent and strategic use of control accounts can support sustainability.

To locate these errors every posting in every account may need to be checked. Interior Design Bookkeeping It is a very time-consuming process, and many person-hours gets wasted for this process. A debtor control account, a creditor control account, and a stock control account are all control accounts. A general ledger contains these kinds of control accounts for summarising business activities within the general ledger.

Uses of Control Accounts

Control accounts function as an inherent component in the broader accounting system architecture. They provide a basis for auditing as auditors often function at higher levels of information summarization. The auditors can thus verify the accuracy of control accounts without a detailed analysis of all the individual entries.

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• This saves companies the need to wait 30 to 90 days to get capital, preserving their cash flow and allowing them to meet their obligations on time or seize new business opportunities.
• There are numerous control accounts which can be used, but the two main ones used by most businesses are the receivables control account and the payables control account.
• A different person can maintain the control account as a preventive measure against fraud.
• This can involve considerable time and expertise to set up and maintain.
• Both Purchases and Sales Ledger Control Accounts check the arithmetical accuracy of theindividual accounts in their respective ledgers.
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What is the purpose of control accounts?

• In conclusion, the structure of a control account is designed to provide clarity and ease in recording, tracking, and auditing financial transactions.
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• When transactions occur, they are recorded in the control account based on whether they are a debit or a credit transaction.
• Thus, control accounts act as a safeguard against human error and deliberate fraud, enhancing the robustness of internal auditing.
• The general ledger can have hundreds of accounts from asset and liability accounts to income and expense accounts.

The main account needs to be shown in the financials (the parties have maintained, i.e., an individual account for the same nature of transactions, and the summarized balance is shown). Entries in the control accounts such as “total sales”, “total purchases” as well as “bank” come from the relevant accounting journals. If you recall that there is a contra entry for cash and bank account; this application is similar to control accounts. Contra entry occurs when you have a creditor that is a debtor at the same time. So, a supplier or (a creditor) will supply you with goods on credit and at the same time purchasing goods (now acting as a debtor) from you on credit. Similarly, a control account is also maintained for each of the other subsidiary ledger.

It is the most up-to-date balance of a particular account at a given time. It can be considered the bottom line for a specific account, which is then transferred over to the balance sheet or income statement depending on the type of account. A different person can maintain the control account as a preventive measure against fraud. Instead, further information will be stored in the Accounts Receivable subsidiary ledger. The information within a ledger can be aggregated for financial statements, reports and audits, and are a key component of accounting systems. Accounts receivable are created when a business extends credit to its customers.