Control account

Control Account (or master account) – an account placed in the general ledger. On this account is recorded sum of the account balances from the particular subsidiary ledger. Therefore, all of the summarized accounts from subsidiary ledger are then shown in one control account in the general ledger. Because of creating control accounts, the general ledger is transforming. There are no more individual detailed accounts from the subsidiary ledger, as they are erased and changed to control accounts. For example, subsidiary ledger named Accounts Receivable (all the accounts from debtors who owe to a company), as control account is known as the Accounts Receivable control account. However, all the specified data can still be found in particular account in the subsidiary ledger.

Advantages of creating control accounts

There are some essential advantages of making control accounts:

1. Control accounts are created to reduce the amount of information through summarizing all the balances from subsidiary ledgers.
2. Because of control accounts, the general ledger is more clear and visible for management. It is less complicated for executives to control and make decisions.
3. Control accounts are improving internal control.
4. Control accounts are accelerating creating profit and loss account at the end of a particular period, as you save time for summarizing balances in the subsidiary ledger.
5. Through control accounts, the general ledger is kept under executive control.
6. Financial condition and detailed accounts of the company can stay unrevealed.

Keeping control accounts

For some keeping, control account can be confusing because the amount which is posted on the one side of the control account as summarized balances also need to be posted as the individual amounts to the same side of the secondary ledger. Therefore, it can be 5 or even 500 entries from subsidiary ledger summarized and posted to the control account. Posting to the control account is not from individual accounts wherefore, the double-entry principle is not used here.

Examples of Control account

• Accounts receivable control accounts: When a company records sales, it will debit Accounts Receivable and credit Sales. The Accounts Receivable control account, which is a general ledger account, will be debited for the total amount of the accounts receivable.
• Accounts Payable control accounts: When a company records expenses, it will debit Expenses and credit Accounts Payable. The Accounts Payable control account, which is a general ledger account, will be credited for the total amount of the accounts payable.
• Inventory control accounts: If a company purchases inventory, it will debit Inventory and credit Accounts Payable. The Inventory control account, which is a general ledger account, will be credited for the total amount of the inventory.
• Bank control accounts: When a company makes deposits to its bank account, it will debit Cash and credit Accounts Receivable. The Bank control account, which is a general ledger account, will be credited for the total amount of the deposits.

Limitations of Control account

Control accounts are a useful tool for recording and monitoring the activity of a subsidiary ledger, but they have some limitations. These include:

• The need to manually reconcile the control account balance with the sum of the subsidiary ledger account balances – this can be time consuming and prone to error, especially if there are a large number of accounts in the subsidiary ledger.
• Control accounts do not capture individual transactions, only the cumulative balance. As such, they cannot be used to generate reports regarding the types of transactions occurring in the subsidiary ledger.
• If a control account is in credit, it can be difficult to ascertain which accounts in the subsidiary ledger are in credit and which are in debit. This can lead to an inaccurate overall picture of the subsidiary ledger.

Other approaches related to Control account

In addition to the control account, there are other approaches to managing accounting information which can be used to maintain accuracy and efficiency. These include:

• Subsidiary Ledger: This is a set of individual accounts which are used to record detailed information related to a particular item or account. This information is then summarized in the control account.
• Double-Entry Bookkeeping: This is a system of accounting that requires recording of a transaction in two separate accounts. The debit account and the credit account must have equal amounts.
• Chart of Accounts: This is a list of accounts used to classify and categorize all of the transactions that take place within a business.
• Accrual Accounting: This is a method of accounting in which revenue and expenses are recorded when they are incurred, regardless of when payment is received or made.

These are just some of the approaches to managing accounting information that can be used in conjunction with the control account to ensure accuracy and efficiency. By using a combination of these approaches, businesses can maintain accurate and up-to-date financial records.

Control account — recommended articles

Sub ledger — Compound journal entry — Deposits in transit — Book of original entry — Nominal account — Income summary — Closing entries — Books of original entry — Reversing entry

References

• A Minbiole E. (2007) CliffsQuickReview Accounting Principles, Houghton Mifflin Harcourt
• Bhar K. B. (2008) Cost Accounting, Academic Publishers
• Chambers L., Ziesenheim K., Trevisani P. (2003) J.K. Lasser Pro Separate Account Management: An Investment Management Strategy Designed for High Net Worth Individuals, John Wiley & Sons
• FIA Maintaining Financial Records FA2 (2017), BPP Learning Media
• Marley S., Pedersen J. (2015) Accounting for Business: An Introduction , Pearson Higher Education AU, 2
• Masoom K. (2013) The Entrepreneur's Dictionary of Business and Financial Terms, PartridgeIndia
• Sangster A., Wood F. (2018) Frank Wood's Business Accounting, Tom 1, Pearson UK, 14

Footnotes

Author: Anna Woroń