Controlling account Wikipedia

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. As you can see, control accounts drastically clean up the ledger and make it easier for accountants and bookkeepers to use. The source documents are also used to enter details of the receipts operating cash flow calculation from each customer in the accounts receivable subsidiary ledger which now appears as follows. In this example, £500 is added to the accounts receivable control account (as it represents an increase in the total amount owed by all customers). These subsidiary accounts typically contain detailed transaction data, while the control account provides an overall view of the total balances.

• Rather than dealing with the extensive details of individual transactions, accountants can use the summarised data from control accounts to present a clear picture of the company’s financial health.
• A company can have hundreds or thousands of customers with current accounts receivable balances.
• Therefore, the Purchase Ledger Control Account is a summary of the total amount owed to all suppliers.

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. The accounts receivable control account or sales ledger control account, is an account maintained in the general ledger used to record summary transactions relating to accounts receivable. The balance on the accounts receivable control account at any time reflects the amount outstanding and due to the business by customers for credit sales. When monitoring your business’s general ledger, you may have an accounts receivable control account.

Accounting Control: Definition, Types, Examples

Here, control accounts are only prepared in general ledger, which has total debtors accounts and whole creditors account. The double entry is completed only in general ledger in respect of total debtors and total creditors accounts. The accounts of individual trade debtors and trade creditors are posted without completing the double entry.

• The source documents are used to enter details into the book of prime entry which, for receipts transactions, is the cash book.
• Control accounts speed up the process of producing management accounts information as the control account balance can be used without waiting for the individual balances to be reconciled and extracted.
• If the total of the individual subsidiary ledger balances doesn’t match the balance in the control account, it signals a potential error.
• The cash receipts are posted to the debit side of the cash control account, and to the credit side of the accounts receivable control account.
• They can quickly verify the accuracy of the control account balances and then explore the subsidiary ledger if necessary.

By adopting this procedure any differences between the sales journal, which is used to post the control account, and the subsidiary ledger will be highlighted when the control account reconciliation is carried out. The two main transaction types for accounts receivables are credit invoice sales transactions, and the receipt of cash from customers. By reviewing historical data in control accounts, businesses can use these figures to form the basis of the next budget projections for the future. When transactions occur in subsidiary accounts, corresponding entries are made in the control account. If you’re running a business, it’s important to understand accounting concepts well.

Advantages of a Control Account

The controls in this category are meant to seek out any current practices that don’t align with the policies and procedures in place. Examples of detective controls would include inventory checks and internal audits. 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. The ending balance in a control account should always match the ending total for its subsidiary ledger.

Advantages of Control Accounts

Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. My Accounting Course  is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.

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If the control account balance doesn’t match the subsidiary ledger, a mistake in calculations may have been made. Control accounts are most commonly used to summarize accounts payable and accounts receivable as these tend to contain a lot of transactions. Therefore they are separated into subsidiary ledgers rather than clutter up the general ledger with too much detailed information. 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.

Examples of These Accounts

Subsidiary accounts are integral when it comes to recording company transactions. 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. Accounting controls consists of the methods and procedures that are implemented by a firm to help ensure the validity and accuracy of its financial statements.

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