What Is a Control Account?

In accounting, control accounts are summary accounts in the general ledger. They reflect the balance of transactions noted in the corresponding subsidiary account.

Control accounts provide a résumé of all the individual accounts in the sales and purchases ledger. They give us a total which can be presented in a business’ statement of financial position. They’re also a means of double checking accounts, to make sure no mistakes have occurred.

In this post, we’ll explore a detailed definition of control accounts, explain how it works and run through some examples.

Control account definition

Also known as a controlling account or an adjustment account, a control account is a general ledger account which shows the balance of all associated subsidiary accounts. Company transactions are all recorded across subsidiary ledgers and then balanced and restated in the control account.

Subsidiary accounts are integral when it comes to recording company transactions. Control accounts, meanwhile, offer the opportunity for financial analysis by just showing the balances of each account. It’s basically a summary that provides clear and accessible insight into financial performance.

How control accounts work 

Control accounts are crucial elements of double-entry accounting and form the basis of the general ledger. Functioning as a summary of total balance for the subledger, they provide a focused analysis of a business’s balance sheet. Plus, when it comes to financial reports, the summary balances displayed in control accounts are generally considered sufficient information.

Depending on a company’s size and the scope of their operations, a general ledger may require multiple control accounts, including accounts receivable, that are informed by associated subledgers. In the general ledger, control accounts will each have an according summary balance.

With a company’s accounts receivable, for example, information concerning every transaction is recorded in subledgers, including customer details, sale information, refund return and any payment terms.

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.

Control account example

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 updated daily. For example, all payables entered on one given day will be collected from the subsidiary ledger and recorded a summary on the accounts payable control account. All control account records must be completed before the books close at the end of a reporting period. If this doesn’t happen, then some transactions may not be reflected in the financial statements rendering them false or incomplete.

Do small businesses need control accounts?

Control accounts are required by large organisations with a large transaction volume. Smaller companies however, may not require control accounts depending on their transaction volume. If it is fairly low, they can simply store transaction data in the general ledger and do not require a subsidiary ledger with an associated control account.

Advantage of control accounts

Control accounting helps create streamlined financial reports, and can provide an additional verification step to ensure accuracy. For example, an accounts receivable control account must have a subtotal which matches the customer balances in the sub ledger. If there is a discrepancy with these totals, then there is an error somewhere in the books which must be identified and corrected.

With accounting software, the process of creating control accounts and subledgers can be simplified.

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