When reviewing the control ledgers, it’s easy to identify errors that exist in subsidiary ledgers. Because the control account only reviews the end balance, there is less risk of miscalculation. If your accounts don’t match, it’s likely that the subsidiary ledger has the error. This can happen easily in things like the accounts receivable subsidiary ledger. 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.

• A company can have hundreds or thousands of customers with current accounts receivable balances.
• This makes sense because the subsidiary accounts are not directly reported in the GL.
• They reflect the balance of transactions noted in the corresponding subsidiary account.
• Einstein utilizes purchases and payable control accounts to record his business transaction.
• If something goes wrong and the balances don’t line up, having a control account makes it easier to spot and correct the problem.

He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University. There are numerous control accounts which can be used, but the two main ones used by most businesses are the receivables control account example of control account and the payables control account. While they may provide complete control, they also require more labor. The people who would monitor these accounts are called control account managers. While this may seem small, it is still a task that has to be taken on.

What is the purpose of control accounts?

It’s basically a summary that provides clear and accessible insight into financial performance. In accounting, a control account is an account within the general ledger whereby a corresponding subsidiary ledger is generated. Subsidiary plays a crucial role in the control account by enabling detailed tracking of transactions. These transactions are recorded in the debtors’ control account to avoid voluminous handling of these documents within the accounting period.

• Control accounts are crucial elements of double-entry accounting and form the basis of the general ledger.
• Control accounts provide a résumé of all the individual accounts in the sales and purchases ledger.
• A control account is a summary-level account within the general ledger of a business that assists in streamlining detailed transactions in a balance.
• To manage them properly, you have to first make a subsidiary ledger where you will keep a record of all customers in one place.
• 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.

If you’re using a manual accounting system, there are benefits to using control accounts. However, if Taylor or anyone else wants to find out the amount that a specific customer still owes for their credit purchases, or when they bought the item, that won’t be shown in the 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. A control account can keep a general ledger from becoming choked with transactional detail. This can be quite useful when a general ledger contains many accounts.

Example of a Control Account

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. The subsidiary ledger contains both the creditor and debit account used to enter separate entries.

If the totals do not agree, then a reconciliation of the control accounts must be made. Accounting software posts transactions to the control accounts in either summary or detail modes. The benefit of posting in detail is that it is easier to reconcile the subsidiary ledgers to these accounts. 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. A stock control account generates the summary of business transactions linked with stocks and inventories.

Example of Control Accounts

There is only one balance for accounts receivable instead of the thousands there would have been otherwise. If someone needs information about a specific customer, then they can check the subsidiary accounts or records to learn more. Smaller companies may be able to rely on control accounts if  they remain balanced using double-entry accounting.

• Listing each debtor account individual account would clutter a general ledger, so those accounts could be listed in a subledger and consolidated in a control account.
• Control accounts are typically used to summarize the accounts payable and accounts receivable ledgers.
• There are other names for control accounts, like adjustment account or controlling account.
• They show the balance of transactions detailed in the corresponding subsidiary account.
• 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.

This process is made more accessible by having control accounts for each subsidiary account listed in the general ledger. Different sales accounts offer a summary of business transactions integrated within the general ledger. The debtors control account contains the sales journal and the total amount of payment owed by the debtors in the company.

If the trial balance does not actually balance, only the accounts whose control account does not reconcile need to be checked for errors. For example, “accounts receivable” is the controlling account for the accounts receivable subsidiary ledger. In this subsidiary ledger, each credit customer has their own account with its own balance. 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.

Nestlé plans to deploy this approach throughout its 350 factories globally. For people to feel comfortable taking on decision-making, they need skills and capabilities they may not have needed (or had) before. Therefore, a robust education and learning effort must accompany decision-making empowerment.

So, it will tell you the total collections and total receivables you owe from your customers. The definition of a control account is a general ledger account that summarizes (or controls) a subsidiary ledger group of detail accounts. The benefit of not posting all of the detail entries to these accounts is that it keeps the general ledger from becoming too cluttered to manage.