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Thus, in order to keep a proper record, you have to maintain control accounts and subsidiary accounts. With double-entry accounting systems, accounts receivable and accounts payable are the most most common types of control accounts. However, some companies may have control accounts for inventory, fixed assets and payroll as well. Control accounts are usually the fiduciary responsibility of a company’s financial manager. They manage these accounts to ensure the accuracy and integrity of financial data.

In this case, there are three possibilities of errors that include the following. Control accounts speed up the process of producing management accounts information as the control account balance can be used without waiting for the individual balances to be reconciled and extracted. The ending balance in a control account should always match the ending total for its subsidiary ledger. If it doesn’t, then there could have been a mistake made during the calculations. Jim doesn’t need to post the details of any of the transactions since the details are already recorded in the subsidiary ledger. Using a control account can guard against fraud, particularly if you have someone else maintain the control account.

Understanding Goodwill in Balance Sheet – Explained

Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent. For example, Jim’s hardware store invoiced two customers for a total of $700. He also received a payment in the amount of $275 from a previous invoice.

  • The balance column keeps track of the running balance of the control account after each transaction.
  • 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.
  • By comparing the balances in control accounts with the sum of corresponding sub-ledger accounts, discrepancies can be quickly identified and addressed.
  • Unintentional errors or intentional fraud can lead to substantial financial losses, which are undeniably detrimental to any organization’s sustainability.
  • However, some companies may have control accounts for inventory, fixed assets and payroll as well.

With the global financial landscape growing more complex, the importance of control accounts for businesses cannot be overstated. They serve as a critical line of defense against errors and fraud and provide a clear, organized view of a business’s financial status at any given time. For instance, all the transactions regarding credit purchases will be posted in the subsidiary payable accounts, where party-wise data is maintained along with purchase returns and discounts received. With the double-entry accounting system, accounts receivable, and accounts payable are the common types of control accounts. Smaller companies may be able to rely on control accounts if  they remain balanced using double-entry accounting. With accounts receivable, as invoices go out the control account is debited, which increases the balance.

Locate errors

By revealing discrepancies between the main ledger and sub-ledgers, control accounts help safeguard an organization’s financial assets and maintain its fiscal health. Control accounts function as an inherent component in the broader accounting system architecture. They provide a basis for auditing as auditors often function at higher levels of information summarization.

Financial Accounting

Individual transactions are posted both to the controlling account and the corresponding subsidiary ledger, and the totals for both are compared when preparing a trial balance to ensure accuracy. A control account works as an adjusting and controlling account that summarizes and sums up balances of all subsidiary accounts’ information of a specific account type in a general ledger. Subsidiary accounts are used to provide support and detailed information on a related account type. Invoices that have been created, customer payments, product returns, refunds, and credit memos posted in the various accounts receivable ledgers will all be included in the accounts receivable control account. The term control account refers to any summary account in the general ledger.

Do small businesses need control accounts?

Firstly, in the subsidiary ledger, you will maintain separate records of each customer and supplier (cash outflows and cash inflows). By doing this, you can track the record of every customer; their opening and ending balances as well as how much you owe or have to pay. Secondly, then you will make a control account in which you put the summary amount- total sales with its invoice price, total collections, or total payout. When comparing the control accounts and subsidiary accounts, both ending balances should match. If the control account balance doesn’t match the subsidiary ledger, a mistake in calculations may have been made. This way the ledger only has one accounts receivable account instead of hundreds.


This can happen easily in things like the accounts receivable subsidiary ledger. 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. For example, “accounts receivable” is the controlling account for the accounts receivable subsidiary ledger. In this subsidiary ledger, each credit customer has their own account with its own balance.

The Role of Control Accounts in Internal Auditing

Great accounting software has many of these features built in, making accounting easier on you. If you found this article to be helpful, be sure to check out our resource hub! Unintentional errors or intentional fraud can lead to substantial financial losses, which are undeniably detrimental to any organization’s sustainability. Control accounts act as a safeguard against this risk by providing a built-in system for cross-verification. By comparing the balance of the control account with the total of individual customer or supplier accounts, discrepancies can be swiftly detected and rectified.

Those subledgers are then totalled up for each period and the totals are recorded in the accounts receivable control account. Put simply, this means that the accounts receivable control account indicates the total amount that a company is owed, while the subledger reflects how much each customer individually owes. 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.

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. In addition to validity, control accounts help ensure the completeness of financial data. If the total of a control account doesn’t match with the sum of the corresponding subsidiary ledger accounts, it indicates that transactions are either missing or duplicated.

In essence, control accounts are an essential tool for any business firm looking to effectively manage its finances and meet external regulatory demands. An example of a preventive control would be limiting management’s involvement in the preparation of financial statements. program evaluation Sometimes it’s helpful for management to be involved since they generally know the company better than anyone. But final say on numbers should be in the hands of an accountant, because management may have the incentive to distort numbers to inflate the company’s performance.

The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Nicholas Bloom, a Stanford economics professor, told The Wall Street Journal that workers increasingly value a flexible workplace and view hybrid work accommodations as equal to an 8% pay increase. “And we found that after return to office mandates, employees’ job satisfaction significantly drops,” Ma said. One potentially contributing factor as to why firm performance has not improved, Ma said, could be due to higher expenses caused by bringing employees back to the office. Debit balances in the payables ledger will be adjust using exactly the same double entry.

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