However, additional control accounts may be necessary depending on the company’s size, type, and industry. It’s essential to ensure that each aspect of your business has a control account since it comprises the general ledger used for financial reporting. A control account is a general ledger summarising an account representing a collection of connected subsidiary accounts. Its goal is to give a sense of control and an overview of each individual transaction within the subsidiary accounts. For instance, a control account for receivables would combine all of the individual client balances to create a total sum for the company’s receivables.
Debit Side Entries
- Use accounting software that automates invoice matching and payment tracking to minimize manual mistakes and streamline the payment process.
- 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.
- Without control accounts, accountants would have to individual add up all of the various subsidiary accounts individually in order to arrive at an overall total.
- If differences arise, it indicates errors in postings or calculations that must be reconciled.
- Keep reading to learn more about the control account’s meaning, purpose, use, advantages, and limitations.
- Control accounts are mainly used to help identify errors in the subsidiary ledgers, but the use of them gives a business a number of additional advantages.
Once you have a good understanding of debits and credits and the basics of double-entry bookkeeping, then you may be ready to understand and start using control accounts. If you are still new to bookkeeping and accounting, I suggest you take my free bookkeeping course. Control accounts are useful in auditing because they provide summary balances to look at rather than a lot of individual transaction details that are available in the sub ledgers.
Advantages and Disadvantages of Using Control Accounts
The control account provides a summary of payables, while the trial balance lists individual transactions and balances for reconciliation. Carefully review journal entries related to accounts payable to ensure debit and credit entries balance out and all transactions are accurately posted to the ledger. With a clear understanding of the AP ledger format, let’s now examine the steps to check arithmetical accuracy in the accounts payable ledger control account. They help clean up a company’s financial statements, and provide a way to fact-check the ledgers. Great accounting software has many of these features built in, making virtual accountant accounting easier on you. If you found this article to be helpful, be sure to check out our resource hub!
Types of Control Accounts
The procedure of comparing the control account with the sales ledger total is called ‘reconciliation’. The sales ledger in a companies accounting function summarises the total amount of money due from it’s customers. This amount should, if correct, equal the sum of all the individual customer accounts held in the sales ledger subsidiary. For control accounts to function properly, their balances must equal the sums of all subsidiary retained earnings ledger balances. If differences arise, it indicates errors in postings or calculations that must be reconciled.
Example of purchase ledger control account
Thus, in order to keep a proper record, you have to maintain control accounts and subsidiary accounts. 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. They are especially important for reconciliation in large companies with a high volume of transactions when only the balance of the account is needed. Those subledgers are then totalled up for each period and the totals are recorded in the accounts receivable control account. Put simply, this means that the accounts receivable control account indicates the total amount that a company is owed, while the subledger reflects how much each customer individually owes.
- 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.
- Implement strict controls and validation procedures during data entry to prevent errors such as incorrect amounts, missing invoices, or wrong supplier details.
- Duplicate payments happen when payments are made to suppliers more than once, often due to similar invoice numbers or unclear payment references.
- For small to medium-sized businesses, it offers streamlined financial tracking and optimization, while finance teams benefit from automated workflows and detailed reporting.
Control Accounts – An Overview
In that case, our confidence in the closing balance increases as these are reconciled. The purchase or sales ledger control account or any other form of the same are commonly used for the following purpose. And the same if the balance of trade receivable is transferred, then the trade receivable account will credit, and the trade receivable control account will debit. Thus, the above accounts are regularly reconciled in order to ensure that the ending balance in the control account will match with the subsidiary account balance.
