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

It will include end amounts for things like total credit sales, collections from customers, and the total amount still owed. Large businesses use it to minimize the summary postings in the general ledger. Instead, enterprises record all the transaction details in a separate subsidiary ledger. Such actions mean that there is no need to reconcile and extract individual accounts to get account information because the company can refer to the control account balance. Control accounts simplify the process of large-scale financial reporting, provide a macro-level overview of the company’s financial status, and help streamline financial planning.

Control Account Posting Example

Thus, while control accounts primarily serve financial and regulatory purposes, their influence extends to the broader realm of CSR by promoting a culture of fiscal discipline, accountability, and transparency. However, like any financial tool, control accounts also come with their potential limitations and complexities. Opposite to the Accounts Receivable, Accounts Payable represents the amount a company owes for purchasing goods or services on credit from its suppliers or vendors. The role of this control account is to monitor all the pending payments that a company must make. The balance in this account increases with every purchase made on credit and decreases when payments are made.

Accounting Software Tools for Small Business

For example, all payables entered during one day will be aggregated from the subsidiary ledger and posted as a single summary-level number into the accounts payable control account. Those subledgers are totaled for each reporting period, and the totals make up the balance of the accounts receivable control account. In other words, the accounts receivable control account reflects the total amount that a company is owed, while the its subledger shows how much each individual customer owes.

Control Account: Understanding its Role in Financial Management

FASB conducted tests for the original ED, putting two multinational corporations through a battery of tests, with no problems. For the revised ED, FASB also sought actual situations that might serve as test cases. Putting theory into practice is never an easy sell when it comes to moving away from concrete rules—so has FASB done its job in testing the proposal? That question worries Lee Knight, professor of accounting at Samford University in Birmingham, Alabama, who wants to see more field tests done before any big changes are put to a vote. “Theoretically, we think the new ED could be wonderful, and yet in practice it may not produce the intended results,” Knight says. For several reasons, including the one Dodyk cites, the October ED failed to get FASB approval.

• “Theoretically, we think the new ED could be wonderful, and yet in practice it may not produce the intended results,” Knight says.
• FASB sets the standards; the external auditor, with an unbiased and independent mindset, attests to client compliance; and the SEC provides further guidance and oversight for publicly traded companies.
• Here, control accounts are only prepared in general ledger, which has total debtors accounts and whole creditors account.
• With double-entry accounting systems, accounts receivable and accounts payable are the most most common types of control accounts.

Sustainability and Control Accounts

Plus, when it comes to financial reports, the summary balances displayed in control accounts are generally considered sufficient information. A “control account” is a general ledger account that summarizes and provides a check on the accuracy of all the detailed subsidiary data. It helps ensure individual transaction controlling account definition records are consistent with the overall total amounts in financial statements. For example, a sales ledger & debtor ledger control account summarizes the transactions entered with the individual accounts in the ledger. Any discrepancy or error is rectified before posting the same in the main ledger.

Control Accounts as a Deterrent against Fraud

We can analyze that the total balance in the payable ledger amounts to $345,000 and carried forward balance in the payable control account amounts to the same balance. Hence, we have reconciled the balances and can use this balance in the preparation of financial statements. It contains aggregated total for the transactions that are posted in the subsidiary ledger. It is also called a controlling account because it enables us to perform reconciliation control on the ending balance. Trade receivable for the period stands at $10000 in different debtors’ accounts, and trade payable stands at $ in different creditors’ accounts.

The revised ED, Dodyk says, will give CPAs a better working definition of what constitutes control. “The new wording is certainly crisper than the original 1995 version, which almost suggested that the 50% threshold for control was moving lower; that was something some did not want to see happen,” he says. ✅ All InspiredEconomist articles and guides have been fact-checked and reviewed for accuracy.

Control accounts are meant to keep a company’s general ledger clean of details. They still need to have the correct financial information needed to prepare the company’s financial statements. Control accounts are clean entries that match overall amounts in more detailed ledgers.

This preventative approach can save a company significant time and resources in rectifying financial mistakes. The crux of a control account’s role in financial management is to enable easy cross-verification of data. Control accounts ensure balances and transactions align correctly with the detailed entries in corresponding subsidiary accounts. So, the control account equalizes all subsidiary accounts, and it helps simplify and organize general ledger account. The general ledger account that sums the subsidiary accounts is said to control the balances that are reported in the ledger.