In common use, control accounts refer to those that would, under ideal circumstances, balance to zero. For example, an inventory control account will hold the balance amount between a stock account updated by stock transactions on the balance sheet and the value of stock on hand multiplied by its unit cost. Reasons for discrepancies include stock losses and gains yet to be "journaled" and the control account measures the differences and provides financial visibility and control of the value of those. If the discrepancy is significant, then actions such as stock counts can be triggered in order to validate stock and correct the balance sheet and clear the control account. With the double-entry accounting system, accounts receivable, and accounts payable are the common types of control accounts.

• The subsidiary ledger allows for tracking transactions within the controlling account in more detail.
• In the creditor's ledger, the monthly recordings are distinguished using a number line, while the individual creditors are differentiated using several categories of digits such as 1 to 10.
• A creditors control account is also called a payable control account or purchases ledger control account because the account is created to indicate the sum of the business creditors.
• The process would be completed for the accounts payable control account, which would record transactions from the purchases journal as well as the cash account.

This account contains aggregated totals for transactions that are individually stored in subsidiary-level ledger accounts. The ending balance in a control account should match the ending total for the related subsidiary ledger. 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.

What is the role of the control account?

We need to apply control because these accounts are expected to have a massive number of transactions. If you’re using a manual accounting system, there are benefits to using control accounts. As we can analyze, that carried forward balance of the control account is equal to the closing balance in the general ledger, totaling to $180,000. Imagine https://accounting-services.net/what-is-the-debtors-control-account-for/ your trial balance or balance sheet with hundreds of transactions appearing on it. A control account can keep a general ledger from becoming choked with transactional detail. So, if reconciliation/control proves that there is no difference between two balances, it means figures are reliable and can be used to prepare the financial statement.

Then Einstein makes entries of every supplier within the payable subsidiary ledger. Later, Einstein documents total purchases within the master ledger by crediting the transaction in the payable control account and debiting the transaction in the purchases account. He also assesses whether the total amount in the control account equates with the amount in the individual supplier account to balance the transaction within the subsidiary ledger. The balance of every stock item in the ledger account should equal the total list of stock items. These stock item lists are derived from subsidiary ledger accounts of an individual stock item.

Definition and Examples of Control Account

As you can see, control accounts drastically clean up the ledger and make it easier for accountants and bookkeepers to use. Simply put, as you know in large organizations there are numbers of customers as well as suppliers. So, if you record each transaction (account payable and account receivable) in the general ledger, it will become too difficult to manage your records easily. Thus, in order to keep a proper record, you have to maintain control accounts and subsidiary accounts. The main use of a control account is to help identify errors that appear in the subsidiary ledgers. But they also give a business other advantages, such as permitting a single trial balance to be extracted from the general ledger.

• Companies using a control account typically post balances from the subsidiary ledgers daily to make sure that they’re always in balance.
• A creditors control account acts as the holding account of purchased credit notes and invoices before they are deposited in the bank account.
• But they also give a business other advantages, such as permitting a single trial balance to be extracted from the general ledger.
• In accounting, a control account is an account within the general ledger whereby a corresponding subsidiary ledger is generated.
• 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.
• A control account works as an adjusting and controlling account that summarizes and sums up balances of all subsidiary accounts’ information of a specific account type in a general ledger.

A control account is a general ledger account that contains the summarized amounts of transactions made within the business. Also, this account is called a controlling account since it promotes the performance of reconciliation control concerning the ending balance. Therefore, this account enables individuals to reconcile the total balance of the subsidiary ledger with the aggregate balance to be applied within the trial balance. A control account is created as a tool for reconciling the journal entries and the general ledger. Reconciliation is an operation that ensures that entries within purchase and sales ledgers agree with the control accounts entries.

How To Prepare A Control Account? Example and Format

Hence, this account ensures the aggregate amount is similar, and if there is no similarity, it indicates the error-promoting correction and investigation of all discrepancies. In the general ledger, there are hundreds of thousands of accounts including expenses, income, liabilities, and asset accounts. Similarly, if every transaction will be recorded in the general ledger, it would become very difficult to organize the general ledger properly. Therefore, we need to have a separate controlling account for each account such as for accounts payable and accounts receivable. In addition, it provides organized and correct ending balances of specific account types for preparing financial statements. Moreover, it bring forth accuracy of analysis because it provides double-check of ending balances of each account.

Again, all of this information is automatically completed if you use accounting software. Transactions are entered daily, monthly, or within a particular duration in the individual creditors' account. Maintaining the individual entries for every individual account is an ideal accounting practice. A creditors control account acts as the holding account of purchased credit notes and invoices before they are deposited in the bank account. Control accounts are most commonly used by large organizations, since their transaction volume is very high.

Sales ledger control account – (SLCA)

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A debtors control account denotes an account within the master ledger that illustrates transactions owed by debtors. Debtors control accounts are also termed receivable control accounts or sales ledger control accounts because transactions among debtors are conducted daily, monthly, or within a specified financial period. The balance of the control account should always be equal to the balance in the subsidiary ledger accounts. Accounts payable and accounts receivable control accounts are the most frequently used control accounts, although inventory and fixed asset control accounts can also be used. A control account integrates and summarizes a particular type of subsidiary account. Einstein utilizes purchases and payable control accounts to record his business transaction.

Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.

• A control account for her business is the general ledger account entitled Accounts Receivable.
• They are especially important for reconciliation in large companies with a high volume of transactions when only the balance of the account is needed.
• Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.
• Maintaining the individual entries for every individual account is an ideal accounting practice.

However, if you’re still using a manual ledger system, the purpose of control accounts is to take the balance of the accounts in the subsidiary ledgers and post the total into the general ledger. Doing this allows you to produce a trial balance and balance sheet without all of the transactions displayed. A common example of a control account is the general ledger account entitled Accounts Receivable. It contains aggregated total for the transactions that are posted in the subsidiary ledger. It is also called a controlling account because it enables us to perform reconciliation control on the ending balance.

If anyone wants to see detailed transactional information for accounts payable or accounts receivable, they can review the detail located in the subsidiary ledger, since it is not located in the general ledger. Smaller companies may be able to rely on control accounts if  they remain balanced using double-entry accounting. With accounts receivable, as invoices go out the control account is debited, which increases the balance. And as payments come in, the control account is credited, decreasing the balance. They show the balance of transactions detailed in the corresponding subsidiary account.