A control account refers to a summary of accounts in the general ledger of a business that assists in streamlining detailed transactions in a balance. A control account is essential during the preparation of financial statements in various corporations. It also frees the general ledger from lots of details, and it is mainly applied for accounts payable and receivable. A control account is used to ensure equality between the general ledger and the subsidiary ledger.

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If this doesn’t happen, then some transactions may not be reflected in the financial statements rendering them false or incomplete. 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. A creditors control account is also called a payable control account or purchases ledger control account because the account is created to indicate the sum of the business creditors. A debtors control account denotes an account within the master ledger that illustrates transactions owed by debtors.

• If you’re using a manual accounting system, there are benefits to using control accounts.
• The debtors control account is also known as the sales ledger control account.
• You can pay off any amount, whether it’s a minimum payment (usually around the amount needed to pay off just the interest), all the way up to the entire balance.
• They manage these accounts to ensure the accuracy and integrity of financial data.

Revolving credit vs. installment credit

They’re also a means of double checking accounts, to make sure no mistakes have occurred. The subsidiary ledger allows for tracking transactions within the control account in further detail. Individual transactions appear in both accounts, but only as an ending balance in the control account. More details such as where the money came from, who it came from and the date it was paid appear in the subsidiary ledger.

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Following are the accumulated balances of the figures that impact the ending balance of accounts receivables. It serves the purpose of the reconciliation that increases our confidence in the ending control account example balance of accounts receivables. Sometimes, businesses can use company-owned assets, such as commercial real estate or equipment, to secure revolving credit with a financial institution.

Compared to a personal loan, the interest rate on revolving credit tends to be higher. This is due to the added flexibility of payment and borrowing compared to traditional loans. Traditional loans also have set payment plans where you pay the same amount each month.

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However, some companies may have control accounts for inventory, fixed assets and payroll as well. The main use of a control account is to help identify errors that appear in the subsidiary ledgers. 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, only the accounts whose control account does not reconcile need to be checked for errors.

Understanding Control Accounts in Context

It is also called a controlling account because it enables us to perform reconciliation control on the ending balance. A common example of a control account is the general ledger account entitled Accounts Receivable. With the double-entry accounting system, accounts receivable, and accounts payable are the common types of control accounts. The best way to approach the question is to consider https://www.bookstime.com/ each of thepoints above in turn and ask to what extent they affect (i) the payablesledger control account and (ii) the listing of payables ledgerbalances. The reconciliation is a working to ensure that the entries in theledger accounts agree with the entries in the control account. The twoshould have the same closing balance as ideally they have had exactlythe same entries in both accounts.

Disadvantages of Control Accounts

• With accounting software, the process of creating control accounts and subledgers can be simplified.
• Plus, when it comes to financial reports, the summary balances displayed in control accounts are generally considered sufficient information.
• (4) Discounts allowed totalling $120 have not been entered in the control account.
• Debit balances in the payables ledger will be adjust using exactly the same double entry.
• Control account details are found in their corresponding subsidiary ledgers.