By creating a correlation between a control account and its subsidiary accounts, a company ensures that any discrepancies or errors can quickly be identified and rectified. 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.
Definition of a Control Account 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. Debtors are shown as assets in the balance sheet under the current assets section, while creditors are shown as liabilities in the balance sheet under the current liabilities section. We also learned that all individualdebtorT-accounts go in thedebtors ledgerand all individualcreditorT-accounts go in thecreditors ledger.
- These are included on the balance of your customer accounts but not the nominal accounts.
- Knowing some accounting terms will be helpful if you run your small business.
- This preventative approach can save a company significant time and resources in rectifying financial mistakes.
- This debtors’ ledger is also a register of each and every transaction that you and a specific debtor entered into.
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 https://accounting-services.net/what-is-the-debtors-control-account-for/ 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.
How do you understand a control account? ›
The other accounts for which control account can be used are equipment, machinery, and inventory of a business. Further, it’s advisable that a control account be prepared for the account balance with a higher number of transactions. However, these balances are in aggregate, and it’s difficult to trace the specific balances in the control account.
- So, if reconciliation/control proves that there is no difference between two balances, it means figures are reliable and can be used to prepare the financial statement.
- Simply put, as you know in large organizations there are numbers of customers as well as suppliers.
- The debtors’ ledger control account should always equal the total of the individual debtors’ ledger amounts.
- It is also called a controlling account because it enables us to perform reconciliation control on the ending balance.
- Control accounts also underpin sustainability by supporting strategic financial planning.
Before posting the transactions to the subsidiary or primary account, the control account clarifies and rechecks each account and its transactions to ensure accuracy. Control accounts, such as those for sales and debtor ledgers, summarise transactions entered into individual accounts. Discrepancies or errors are corrected before posting to the main ledger.The purpose of control accounting is to ensure accurate reconciliation and to produce clean financial reports. Control accounts for accounts receivable must match the subtotals of the customer balances in the sub-ledger. It is, therefore, necessary to correct an error in the books if it does not.
Debtors and Creditors Control Accounts (
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. 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 cost ledger control account is also known as General Ledger Adjustment Account.
Find the total outstanding balance of your customer accounts
Control accounts are usually maintained by large organizations because of a high volume of transactions. To manage them properly, you have to first make a subsidiary ledger where you will keep a record of all customers in one place. At last, you can make a controlling account by putting ending balances of subsidiary accounts. So, it will tell you the total collections and total receivables you owe from your customers. Firstly, in the subsidiary ledger, you will maintain separate records of each customer and supplier (cash outflows and cash inflows).
It might include the supplier or customer name, an invoice number, or a brief narration of the transaction that helps to provide context around the transaction. A debtor is a person or an entity that owes money to another, which could be any individual or institution (including the government). In most cases, the debtor has to pay interest on debt along with the principal debt. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries.
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. In the general ledger, there are hundreds of thousands of accounts including expenses, income, liabilities, and asset accounts. 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.
Preparation of Receivable Control Account
The word reconciliationactuallycomes fromreconcile, which means to make two amounts agree in value. About the Author – Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers. The word reconciliation actually comes from reconcile, which means to make two amounts agree in value.
The transactions that affect the debtor/receivable control account are the ones we have already discussed in the previous lessons in level one and two of this accounting tutorial series. In this lesson we will consider a further explanation of the same specific transactions and how to adjust the receivable control account to determine the correct value thereof. In addition, we will incorporate other transactions that we did not focus on in the previous discussions.
Definition and Examples of Control Account
And as payments come in, the control account is credited, decreasing the balance. While subsidiary accounts are critical for recording a company’s transactions, control accounts allow for high-level analysis by simply focusing on the balances of each account. They are especially important for reconciliation in large companies with a high volume of transactions when only the balance of the account is needed. Suspense accounts contain the difference between the total debit and credit of control accounts, whereas control accounts contain receivables and payables to or from subsidiary accounts. A common example of a control account is the general ledger account entitled Accounts Receivable.