Concrenorte

Chapter 14 Control Accounts

But they also give a business other advantages, such as permitting a single trial balance to be extracted from the general ledger. If the trial balance does not actually balance, control account only the accounts whose control account does not reconcile need to be checked for errors. The details of a control account will be found in a corresponding subsidiary ledger.

The control account’s primary purpose is to ensure the subsidiary account’s accuracy by clarifying and rechecking the individual account and their transactions before posting it with the subsidiary account or primary account. For example, a sales ledgerSales LedgerA sales ledger is a ledger entry that records any sale in the book of records, even if the payment is received or not yet received. It records the sales and the cash when received and the amount owed to the business.read more & debtor ledger control account summarizes the transactions entered with the individual accounts in the ledger.

Difference Between Control and Suspense Account

If you recall that there is a contra entry for cash and bank account; this application is similar to control accounts. Contra entry occurs when you have a creditor that is a debtor at the same time. So, a supplier or (a creditor) will supply you with goods on credit and at the same time purchasing goods (now acting as a debtor) from you on https://www.bookstime.com/articles/negative-retained-earnings credit. The general ledger can have hundreds of accounts from asset and liability accounts to income and expense accounts. More over, each account type can have hundreds of smaller accounts called subsidiary accounts. If every single account was included in the general ledger, it would be very large, unorganized, and difficult to use.

The benefit of posting in detail is that it is easier to reconcile the subsidiary ledgers to these accounts. However, if you’re still using a manual ledger system, the purpose of control accounts is to take the balance of the accounts in the subsidiary ledgers and post the total into the general ledger. Doing this allows you to produce a trial balance and balance sheet without all of the transactions displayed. The balance of the control account should always be equal to the balance in the subsidiary ledger accounts. Accounts payable and accounts receivable control accounts are the most frequently used control accounts, although inventory and fixed asset control accounts can also be used.

Cash Sales and Cash Purchases

Similarly, if every transaction will be recorded in the general ledger, it would become very difficult to organize the general ledger properly. Therefore, we need to have a separate controlling account for each account such as for accounts payable and accounts receivable. In addition, it provides organized and correct ending balances of specific account types for preparing financial statements. Moreover, it bring forth accuracy of analysis because it provides double-check of ending balances of each account. Most importantly, the ending balance of the subsidiary ledger should match the ending balance of the related controlling account. This account contains aggregated totals for transactions that are individually stored in subsidiary-level ledger accounts.

The transactions recorded in this account are categorized using identity numbers or alphabetic letters to distinguish the individual debtors. 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. Control accounts are an important component of double-entry accounting and make up the foundation of the general ledger. 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.