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. With accounting software, the process of creating control accounts and subledgers can be simplified.

A practical example for the control account

• Hence, generally, the individual account balances and the control account balance will be tallied.
• “The new wording makes the exposure draft more operational, especially the wording on general partnerships,” she says.
• This can happen easily in things like the accounts receivable subsidiary ledger.
• Those subledgers are then totalled up for each period and the totals are recorded in the accounts receivable control account.
• In common use, control accounts refer to those that would, under ideal circumstances, balance to zero.

As such, control accounts alone cannot provide a comprehensive overview of an organization’s overall financial status. The structure of a control account – an aggregate of several similar transactions – naturally acts as a deterrent against fraudulent activities. Given that fraud often involves manipulations of individual transactions, control accounts can bring attention to these illicit activities at an early stage. With each subsidiary ledger scrutinized against the corresponding control account, fraud becomes more difficult to execute and easier to spot.

Structure of a Control Account

Timely financial reports, derived from well-managed control accounts, can reveal whether a company is adhering to its budget, meeting its performance goals, and whether resources are being allocated effectively. Thus, control accounts act as a safeguard against human error and deliberate fraud, enhancing the robustness of internal auditing. They facilitate an efficient, organized system that enables auditors to confirm the reliability of a company’s financial reports, bringing value to operations and providing assurance to stakeholders. Control accounts serve as a bridge between source data (individual sales invoices, for example) and the general ledger. They help auditors verify accuracy as they summarize transaction information in a manner that can be cross-checked with pertinent sub-ledger balances.

Journal Entries

The details of those transactions live in the subledger and the balance is reported to the control account. The control account for accounts receivable will only show the total amount that is owed to the company at a point in time without all the details of each customer’s transaction. While subsidiary accounts are critical for recording a company’s transactions, control accounts allow for high-level analysis by simply focusing on the balances of each account.

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. A company that sells products on credit may have many transactions in the accounts receivable subledger.

Experienced in using Excel spreadsheets for her bookkeeping needs and created a collection of user-friendly templates designed specifically for small businesses. Control accounts could also be used for accounts payable, equipment, and inventory. These two columns in the control account record controlling account definition the value of the transaction. If the account is being debited, the amount is entered into the debit column. When considering this accounting technique, there are distinct advantages and disadvantages involved. Take a look at some of the reasons to use, and not to use, a control account.

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. Similarly, all the entries regarding credit sales are posted in the account receivable ledger, along with sales returns and discounts allowed. To ensure accuracy of the ending balance for accounts receivables, we obtain accumulated figures for the credit sales, cash received, sales return, and discount allowed to construct the control account. The term control account refers to any summary account in the general ledger. There are other names for control accounts, like adjustment account or controlling account.

With a company’s accounts receivable, for example, information concerning every transaction is recorded in subledgers, including customer details, sale information, refund return and any payment terms. Using a good accounting software package is the easiest way to view and amend control accounts. It streamlines the entire accounting process and provides comprehensive reporting features that enhance clarity and efficiency. Accurate and transparent financial reports, backed by properly maintained control accounts, help to provide such assurance. They indicate the organisation’s financial stability and its commitment to adhering to regulatory standards and ethical business practices.