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. For financial reports, the summary balances provided by the control accounts are generally all that’s needed for analysis. The ending balance in a control account should always match the ending total for its subsidiary ledger.

• A control account is a general ledger account that contains the summarized amounts of transactions made within the business.
• Control accounting both helps produce clean financial reports, and provides checks and balances for accurate reconciliation.
• If you need to view a specific transaction, you would need to access the appropriate subsidiary ledger in order to view the details.
• Once different accounting entries are posted in the books, different ledgers are created that help to set structured and complied data related to different business operations.
• The other accounts for which control account can be used are equipment, machinery, and inventory of a business.
• If it doesn’t, then there could have been a mistake made during the calculations.
• It’s the account that is used to record all credit transactions made in terms of sales.

A control account refers to a summary of accounts in the general ledger of a business that assists in streamlining detailed transactions in a balance. A control account is essential during the preparation of financial statements in various corporations. It also frees the general ledger from lots of details, and it is mainly applied for accounts payable and receivable. A control account is used to ensure equality between the general ledger and the subsidiary ledger. A general ledger involves a record of the entire past transactions in the business.

Terms Similar to Control Account

So, it will tell you the total collections and total receivables you owe from your customers. 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. Control accounting both helps produce clean financial reports, and provides checks and balances for accurate reconciliation.

The debtors control account contains the sales journal and the total amount of payment owed by the debtors in the company. Also, businesses with many creditors should adopt maintaining the individual entries by placing totals within the creditors control account. A creditors control account refers to a ledger account that indicates the sum of the creditors’ transactions within the master ledger. On the other hand, a stock control account depicts the total value of the stock items.

Overview: What is a control account?

Hence, we have reconciled the control account and receivable balance in the general ledger. Now, we are confident in the accuracy of the receivable balance and can be used to form a financial statement. It’s important to note that the control account balance does not impact the figures in the trial balance and financial https://accounting-services.net/what-is-the-debtors-control-account-for/ statement. Control accounts are typically used in larger organizations that have hundreds or even thousands of transactions. Control accounts are part of double-entry accounting, which states that any debit posted to the general ledger will have a corresponding credit posted to the general ledger as well.

Therefore they are separated into subsidiary ledgers rather than clutter up the general ledger with too much detailed information. Sales ledger control account is also known as debtor control account or Trade debtor control account. It explicits total trade debtors of a business entity at a specific given period. Further, it elaborates the total amount owed by all customers in a given time frame.

Controlling account

Hence, we have reconciled the balances and can use this balance in the preparation of financial statements. 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. Control accounts are general ledger accounts that summarize lower-level activity into a single balance. Used with subsidiary accounts, your control balance should always be equal to the balance in the control account.

In the accounting cycle, the first step is posting entries in the books of accounts. Once different accounting entries are posted in the books, different ledgers are created that help to set structured and complied data related to different business operations. If you need to view a specific transaction, you would need to access the appropriate subsidiary ledger in order to view the details.

Thus, while the “accounts receivable balance” can report how much the company is owed, the accounts receivable subsidiary ledger can report how much is owed from each credit customer. A company that sells products on credit may have many transactions in the accounts receivable subledger. 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. Control accounts are most commonly used to summarize accounts payable and accounts receivable as these tend to contain a lot of transactions.

• In addition, it provides organized and correct ending balances of specific account types for preparing financial statements.
• 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.
• Accounting software will automatically categorize data and create control accounts and subledgers, allowing for simple data segmenting, as well as accurate accounting practices.
• A general ledger refers to a master accounting document that provides a comprehensive record of all of the financial transactions in the business.

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. 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.

What is a Control Account in Accounting? Definition, Types, and purpose

If it doesn’t, then there could have been a mistake made during the calculations. The other accounts for which control account can be used are equipment, machinery, and inventory of a business. Further, it’s advisable that a control account be prepared for the account balance with a higher number of transactions.

• To do so, we get accumulated balances that affect the movement of accounts.
• The general ledger can have hundreds of accounts from asset and liability accounts to income and expense 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.
• The control account keeps the general ledger free of details, but still has the correct balance for preparing the company’s financial statements.
• The details for each control account will be found in a related (but separate) subsidiary ledger.

A different person can maintain the control account as a preventive measure against fraud. For example, Jim’s hardware store invoiced two customers for a total of $700. He also received a payment in the amount of $275 from a previous invoice. She is a Business Content writer and Management contributor at 12Manage.com, where she contributes a business article weekly.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent.

Following are the accumulated balances of the figures that impact the ending balance of accounts receivables. However, sometimes there can be no match between the closing balance in the control account and the total of the party-wise accounts. In this case, there are three possibilities of errors that include the following.