In a small business the accounts can be kept in one accounting general ledger and a trial balance can be extracted from that ledger. The subsidiary ledgers are now part of the double entry system, and to extract a trial balance it would be necessary to collect information on the balances from each of the ledgers. In order to avoid this situation the general ledger maintains control accounts for each of the subsidiary ledgers. Before posting the transactions to the subsidiary or primary account, the control account clarifies and rechecks each account and its transactions to ensure accuracy.
Sales ledger Control Account
Each day the total of the day’s credit sales and the day’s collections are posted to this account. However, the details involving specific customers’ accounts will be found in a subsidiary ledger. The primary purpose of a control account is to detect errors in subsidiary ledgers. But they also provide other advantages to a business, such as allowing it to draw its trial balance from the general ledger. A common example of a control account Legal E-Billing is the general ledger account entitled Accounts Receivable.
How Control Accounts Work?
- The purchase or sales ledger control account or any other form of the same are commonly used for the following purpose.
- When setting up a control account, bookkeepers, finance team members and accountants will need to define the account structure and subledger details they want to track.
- It can be considered the bottom line for a specific account, which is then transferred over to the balance sheet or income statement depending on the type of account.
- Further, it elaborates the total amount owed by all customers in a given time frame.
- The debtors control account is also known as the sales ledger control account.
Regular reconciliations between the control and subsidiary ledger are required for accuracy. If any errors are spotted, it’s usually due to double-entry postings of ledger updates not yet being carried through to the control account. This detailed information is needed for tracking accounts receivable, accounts payable, and inventory.
Way, 3-Way, And 4-Way Invoice Matching: The Full Breakdown
There are numerous control accounts which can be used, but the two main ones used by most businesses are the receivables control account and the payables control account. These accounts are summary accounts that are used to organize and simplify the general ledger to prepare the company’s financial statement. 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. 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.
What is a Control Account in Accounting? Definition, Types, and purpose
E.g., it may be a separate account designed for vendors adjusting entries and maintained, which summarizes the personal accounts. Hence, generally, the individual account balances and the control account balance will be tallied. The term control account refers to the accounting ledger where a summary of all transactions having the same nature is recorded.
An accounts payable control account monitors the amount owed by a business to its suppliers, ensuring that all transactions related to AP are tracked accurately and maintains a clear record of liabilities. Its structure typically includes the date, particulars, voucher number, debit, credit, and balance, which are carefully recorded to track transactions, liabilities, and outstanding balances with suppliers. When monitoring your business’s general ledger, you may have an accounts receivable control account. The control account will only show you the accounts receivable balance after all calculations have been done. It will include end amounts for things like total credit sales, collections from customers, and the total amount still owed.
- We’ve mentioned a ledger a few times now, but what is a ledger in accounting?
- Both the sum of the supplier accounts and the purchase ledger control account need to match.
- Itemized parsing provides detailed visibility into ledger transactions, enabling efficient expense management.
- Suspense accounts contain the difference between the total debit and credit of control accounts, whereas control accounts contain receivables and payables to or from subsidiary accounts.
- In addition, it provides organized and correct ending balances of specific account types for preparing financial statements.
- Take a look at some of the reasons to use, and not to use, a control account.