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

The fundamental purpose of a control account is to aid in the detection of mistakes in subsidiary ledgers. However, they also provide additional benefits to a company, such as the ability to what are control accounts extract a single trial balance from the general ledger. Only the accounts whose control account does not reconcile need to be examined for mistakes if the trial balance does not balance.

• Read why control accounts are used, what they can’t do, and why the general ledger can’t be ignored altogether.
• Control accounts provide a summary of transactions recorded in various subsidiary ledger.
• The examples above are very basic and are standard double-entry accounting transactions.
• This account contains aggregated totals for transactions that are individually stored in subsidiary-level ledger accounts.

If at any time the control account and the subsidiary ledger are not in balance, the subsidiary ledger will need to be reconciled to locate and correct the error. A debtors control account utilizes the principle of double-entry because both the debit and credit transactions are recorded. Sums paid by debtors and the sum of credits realized within the business are recorded. Other examples of controlling accounts and their subsidiary ledgers include “accounts payable” and “equipment” . Control Accountsmeans summary accounts designed to control accountability for individual property records.

Locate errors

Entries affecting the personal account must affect the control account in this case. It can check the arithmetical accuracy of the accounts posted in the ledger. Account, all the balance in individual trade payable accounts transfers to a creditor account. Control accounts could also be used for accounts payable, equipment, and inventory. Instead, further information will be stored in the Accounts Receivable subsidiary ledger. Accounting control systems do not work under one size fits all scenarios. Research on the relationship between business strategies and accounting-based control systems finds organizational design and corporate culture to play a significant role in a business’s success.

• Thus, Stores Ledger Control Account is stores ledger in a summary form.
• Plus, get practice tests, quizzes, and personalized coaching to help you succeed.
• However, before using specific balance calculated, we need to apply control and ensure the accuracy of the balance.
• The minor debit and credit balances brought down as indicated in the information given should be indicated in the respective control account below the total values.
• A subsidiary ledger deals with the storage of the information for the general ledger account, so it provides a tool for reconciliation between the general ledger and the journal entries.
• 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.
• All of these balances are kept in their own accounts receivable subsidiary accounts.

An example of a preventive control would be limiting management’s involvement in the preparation of financial statements. Sometimes it’s helpful for management to be involved since they generally know the company better than anyone. But final say on numbers should be in the hands of an accountant, because management may have the incentive to distort numbers to inflate the company’s performance. Jurgen operates a machine shop with some very expensive, digitally controlled boring and milling machines. He wants see the value of these important assets on his balance sheet separately from other fixed assets like workbenches and office furniture. So he creates a custom control account called Digital machinery and assigns those fixed assets to it.

Control Accounts: Meaning, Advantages and Formats

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. It is a summary account, so there are chances of https://www.bookstime.com/ having an error in this account. If any person in an organization wants to see the subsidiary’s balance, it is a birds-eye view of General Ledger. The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments.

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. A subsidiary ledger deals with the storage of the information for the general ledger account, so it provides a tool for reconciliation between the general ledger and the journal entries.

Create a clipboard

A control account is a summary-level account within the general ledger of a business that assists in streamlining detailed transactions in a balance. Also, the control account denotes the general ledger account involved in the summary of lower-level activity within a single balance. A general ledger refers to a master accounting document that provides a comprehensive record of all of the financial transactions in the business.