What Are Control Accounts?

This account contains aggregated totals for transactions that are individually stored in subsidiary-level ledger accounts. The ending balance in a control account should match the ending total for the related subsidiary ledger. If the balance does not match, it is possible that a journal entry was made to the control account that was not also made in the subsidiary ledger. The use of accounts receivable and accounts payable control accounts creates an accounting system where only the general ledger is self balancing.

• For example, if your bookkeeper or accounting clerk is responsible for entering sales or purchases transactions, you can have someone else be in charge of the control account, thus providing a safeguard against fraud.
• A control account plan helps roll items from a lower level to the plan level and vice-versa.
• Used primarily in larger businesses that are still using manual ledger systems, general ledger control accounts are also used in accounting software applications and are created during the chart of accounts setup process.
• The people who would monitor these accounts are called control account managers.
• But they also give a business other advantages, such as permitting a single trial balance to be extracted from the general ledger.
• In contrast an accounting system in which all ledgers are individually balanced is referred to as a self balancing system.

What Are the Subsidiary Ledgers For?

For example, two invoices might be generated, one to customer A for 500, and a second to customer B for 300. The vendor balance for Gus Grass is $0 and the accounts payable balance is $0. Since both are zero and match, it would not be necessary to prepare a schedule of accounts payable.

Examples of Control Accounts

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. Control accounting both helps produce clean financial reports, and provides checks and balances for accurate reconciliation. 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. If it does not, then there is an error https://x.com/BooksTimeInc somewhere in the books that must be corrected. In a typical bookkeeping system where the control accounts form part of the double entry posting, the accounts receivable control account is used for each of these types of transaction as follows. Before getting into who creates control accounts, let us first understand what a control account is in project management, the process in which it is created, and how the process functions.

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

Considering the components where details are not evident to the degree to produce verifiable subcomponents of products, services, and outcomes. Here, we are aware of the work through the detailed schedule activities are not possible to determine. A planning package can be converted into a work package with the lowest level details in defining budget and schedule. Individual work packages form the building blocks of project deliverables and the foundation at which the project is evaluated and monitored. It should be noted that in the above example, the subsidiary ledger and the sales journal are independently completed from the source documents. By adopting this procedure any differences between the sales journal, which is used to post the control account, and the subsidiary ledger will be highlighted when the control account reconciliation is carried out.

Cash Receipts Transactions

The elements that are frequently integrated using the control account tool comprises of the scope of a project, the actual cost, and the project schedule. In this example, the business uses a cash control account in the general ledger, and the cash book does not form part of the double entry system, and is simply a listing of the cash receipts. Control accounts are most commonly used by large organizations, since their transaction volume is very high. 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. If anyone wants to see detailed transactional information for accounts payable or accounts receivable, they can review the detail located in the subsidiary ledger, since it is not located in the general ledger. The information posted to the accounts payable control https://www.bookstime.com/articles/bookkeeping-clean-up-guide account and the source of that information are shown in the table below.

• In this example, the business uses a cash control account in the general ledger, and the cash book does not form part of the double entry system, and is simply a listing of the cash receipts.
• However, before using specific balance calculated, we need to apply control and ensure the accuracy of the balance.
• The sales are posted to the credit side of the sales revenue account, and to the debit side of the accounts receivable control account.
• They serve as a summary report of the total balances for each subledger, and allow for a streamlined analysis of a company’s balance sheet without all of the clunky details contained in each subledger.
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• Instituting control account systems at a WBS level also facilitates analysis of chargebacks to the project accounts and reconciliation of any missing/differential entries as per the accounting practices.

Financial Accounting

For financial reports, the summary balances provided by the control accounts are generally all that’s needed for analysis. 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. The source documents are used to enter details into the book of prime entry which, for receipts transactions, is the cash book. For example, two cash receipts might be received, one from customer A for 275, and a second from customer control account example B for 170. The sales invoice acts as the original accounting source document for the transaction.

Advantages of Control Accounts

Following this procedure helps the management create a control on the ledger posting, which safeguards against the possible chances of misrepresentation and fraud. Hence, we have reconciled the control account and receivable balance in the general ledger. Now, we are confident in the accuracy of the receivable balance and can be used to form a financial statement. It serves the purpose of the reconciliation that increases our confidence in the ending balance of accounts receivables. For instance, Accounts payable is effected by credit purchases, payment made to the supplier, purchase returns, and discounts received. However, before using specific balance calculated, we need to apply control and ensure the accuracy of the balance.

In this case, there are three possibilities of errors that include the following. Suppose the closing balance of the accounts payable in the control account (prepared with accumulated balances) is the same as the total accounts payable balance in the general ledger. In that case, our confidence in the closing balance increases as these are reconciled.