What is a Control Account?
A control account in accounting is defined as a summary-level account in the general ledger. The account contains the sum total of individual transactions from subsidiary ledger accounts. Control accounts are typically used to summarize the accounts payable and accounts receivable ledgers. Those ledgers usually contain a vast number of transactions that should be separated into different subsidiary ledgers rather than clogging up the general ledger with too much information.
The final balance for the control account should be the same as the final balance for the associated subsidiary ledger. If these balances don’t match, then it’s likely there was a journal entry made to one account but not the other. Double-check the accounts to make sure that everything matches up.
If someone wanted to see detailed information for accounts receivable or accounts payable, they could use the details in the subsidiary ledger as the information isn’t in the general ledger.
Take the accounts receivable, for example. Companies may have thousands of customers, all with accounts receivable balance. Each of those balances is recorded in a separate A/R subsidiary account. The total for all the accounts is taken and put into the A/R control account. The balance appears in the general ledger and in financial statements.
By doing this, companies limit how much space is taken up on the ledger. 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.
Control account makes for a much cleaner and easier-to-read ledger that’s easier for bookkeepers to use and manage.
Use of Control Account
Small business accounts are kept in a single general ledger used to extract a trial balance. For a large business, where there are too many transactions to be managed by only one person, subsidiary ledgers such as the accounts receivable and accounts payable ledger are opened. These subsidiary ledgers form the double-entry system. The bookkeeper would need to collect information about the balance of both ledgers to determine the trial balance for the account. This process is made more accessible by having control accounts for each subsidiary account listed in the general ledger.
Simply put, control account offers a total amount for subsidiary accounts to prevent the general ledger from getting clogged with information from hundreds or thousands of individual accounts.
Advantages of Control Account
Bookkeepers typically use control accounts to identify potential errors in subsidiary ledgers. There are several other advantages to using a control account, including:
- Control accounts offer the chance to use a single trial balance from the general ledger to keep it clear
- If the trial balance doesn’t balance correctly, then only the accounts where the control account doesn’t match has to be checked for errors
- Different people can check and maintain the control account to protect against fraud
- Control accounts speed up the production of management accounts information because you can use the account balance without waiting for individual balances to be extracted and reconciled
- Control accounts reduce how many details are listed in the general ledger
Control Account and the Double Entry System
You have two options for using control accounts and the double-entry system. These options are presented below. Either one is acceptable.
- The subsidiary ledgers (the accounts payable and accounts receivable ledger) are considered a part of the double-entry system. With this method, the control account is for information purposes only and isn’t considered part of the overall system.
- The control account is considered part of the double-entry system, with only the subsidiary accounts used for analysis purposes.
Posting of Control Accounts
The information used in the posting of control accounts comes from the books of prime entry, including:
- Sales returns book
- Sales daybook
- Sales returns book
- Purchases daybook
- Purchases return book
Control Account Posting Example
Let’s look at an example of control account posting. We’ll use credit card sales and accounts receivables for this example. We’ll also assume that the control accounts are considered part of a double-entry system with the subsidiary ledgers used for analysis purposes only. In this scenario, the posting process is as follows:
- Every sale for the day is recorded in the sales day book and totaled
- The total sales are kept in the general ledger.
- The entries from the sales day book are entered into the accounts receivable ledger accounts for analysis if needed
- The total amount from the accounts receivable control account and accounts receivable ledger account are reconciled to check for irregularities
What are the Main Control Accounts?
Bookkeepers have access to several control accounts. The two used most often by businesses are the accounts payable control account and the accounts receivable control account.
Accounts Payable Control Accounts
The information for the accounts payable control account and where that information comes from are detailed below:
|Posting||Dr / Cr||Source|
|Beginning balance||Credit||Accounts payable ledger|
|Purchases||Credit||Total credit sales from the purchase day book|
|Cash payments||Debit||Total cash paid to suppliers from cash book|
|Purchase returns||Debit||Total from purchase returns daybook|
|Discount received||Debit||Total from cash book|
|Ending balance||Credit||Accounts payable ledger|
|Accounts Payable Control Account Information Sources|
Accounts Receivable Control Accounts
The information for the accounts receivable control accounts and where that information comes from are detailed below:
|Posting||Dr / Cr||Source|
|Beginning balance||Debit||Accounts payable ledger|
|Sales||Debit||Total credit sales from the sales day book|
|Cash receipts||Credit||Total cash received from customers from cash book|
|Sales returns||Credit||Total from sales returns daybook|
|Bad debts||Credit||Total from journal postings|
|Discounts allowed||Credit||Total from cash book|
|Ending balance||Debit||Accounts receivable ledger|
|Accounts Receivable Control Account Information Sources|
Using an account payable and accounts receivable control account like this creates a self-balancing accounting system. All of the subsidiary accounts and payable ledgers use a single-entry bookkeeping system and don’t self-balance because of it. As the only part of the accounting system is self-balancing, some people refer to it as a “sectional balancing system.” This makes the system different from an accounting system where every ledger is individually balanced, which creates the “self-balancing system.”
A control account is a summarized account used to maintain records of individual accounts included in the ledger. The control account helps to clarify and verify information from a subsidiary ledger. Using a control account like this enables management to have more control over ledger posting, which helps to prevent fraud and misrepresentation. Control accounts help keep the general ledger clean and allow hundreds of accounts to be listed under a single figure. If something goes wrong and the balances don’t line up, having a control account makes it easier to spot and correct the problem. There are many benefits to using these accounts as part of your accounting system. Be sure to talk to your accountant about creating and managing control accounts.