However, the details involving specific customers’ accounts will be found in a subsidiary ledger. 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. A common example of a control account is the general ledger account entitled Accounts Receivable. Control accounts also underpin sustainability by supporting strategic financial planning.

Accuracy

In addition to validity, control accounts help ensure the completeness of financial data. If the total of a control account doesn’t match with the sum of the corresponding subsidiary ledger accounts, it indicates that transactions are either missing or duplicated. Control accounting both helps produce clean financial controlling account definition reports, and provides checks and balances for accurate reconciliation. In the case of an accounts receivable control account, the subtotal of the customer balances in the subledger must match up to the control account. If it does not, then there is an error somewhere in the books that must be corrected.

What are the Main Control Accounts?

• One of the central ways in which control accounts support sustainability is through promoting efficient use of resources.
• For example, a sales ledger & debtor ledger control account summarizes the transactions entered with the individual accounts in the ledger.
• However, before using specific balance calculated, we need to apply control and ensure the accuracy of the balance.
• The balance in a control account should be equivalent to the collective balance of linked subsidiary accounts.

Find out how GoCardless can help you with Ad hoc payments or recurring payments. The balance column keeps track of the running balance of the control account after each transaction. This is usually a running total that cumulatively adds or subtracts each debit or credit to the previous balance to show the current balance at each point in time. A control account typically follows a structured layout to ensure accurate and efficient recording of all financial processes. At its core, the control account structure consists of various columns that capture specific information.

AccountingTools

It serves the purpose of the reconciliation that increases our confidence in the ending balance of accounts receivables. Each party’s total is accumulated at one place, and a certain balance is calculated to be used in the trial balance for the formation of financial statements. The people who would monitor these accounts are called control account managers. You don’t want the person in control of your general accounts in control of the control accounts, as well. The purchase or sales ledger control account or any other form of the same are commonly used for the following purpose.

This account is created to record the summarized balance of the individual ledgers maintained for different parties in accounting for the transactions. E.g., it may be a separate account designed for vendors and maintained, which summarizes the personal accounts. Hence, generally, the individual account balances and the control account balance will be tallied. Ithin a charged political atmosphere, the Financial Accounting Standards Board issued a revised exposure draft to clarify consolidation policy after its 1995 ED failed to obtain board approval. They reflect the balance of transactions noted in the corresponding subsidiary account.

Suppose the closing balance of the accounts payable in the control account (prepared with accumulated balances) is the same as the total accounts payable balance in the general ledger. In that case, our confidence in the closing balance increases as these are reconciled. For instance, all the transactions regarding credit purchases will be posted in the subsidiary payable accounts, where party-wise data is maintained along with purchase returns and discounts received. 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. Control accounts are most commonly used by large organizations, since their transaction volume is very high. A small organization can typically store all of its transactions in the general ledger, and so does not need a subsidiary ledger that is linked to a control account.

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.

A control account can keep a general ledger from becoming choked with transactional detail. At the end of the day, everyone agrees that the standard-setting process has served the investment community well. FASB sets the standards; the external auditor, with an unbiased and independent mindset, attests to client compliance; and the SEC provides further guidance and oversight for publicly traded companies. “It’s in the setup of a consolidation project that most of the work comes in,” says McComb.