Accounting Control: Definition, Types, Examples

Control accounts are an important component of double-entry accounting and make up the foundation of the general ledger. In common use, control accounts refer to those that would, under ideal circumstances, balance to zero. Reasons for discrepancies include stock losses and gains yet to be “journaled” and the control account measures the differences and provides financial visibility and control of the value of those. If the discrepancy is significant, then actions such as stock counts can be triggered in order to validate stock and correct the balance sheet and clear the control account.

Control accounts provide summary balances that are sufficient for analysing financial reports. A control account is a general ledger summarising an account representing a collection of connected subsidiary accounts. Its goal is to give a sense of control and an overview of each individual transaction within the subsidiary accounts. For instance, a control account for receivables would combine all of the individual client balances to create a total sum for the company’s receivables.

  • Other controllers work for the government and are akin to chief financial officers (CFOs) for their respective agencies.
  • A controller’s role is heavily (if not exclusively) rooted in dealing with actual transactions.
  • This may include the accounts payable lead, procurement lead, purchasing lead, financial reporting manager, or payroll manager.
  • Since both are zero and match, it would not be necessary to prepare a schedule of accounts payable.

Jim doesn’t need to post the details of any of the transactions since the details are already recorded in the subsidiary ledger. If you need to view a specific transaction, you would need to access the appropriate subsidiary ledger in order to view the details. Again, all of this information is automatically completed if you use accounting software.

Control Account Posting Example

Knowing some accounting terms will be helpful if you run your small business. Transaction details from subsidiary ledgers determine the balances of control accounts. An organisation’s control accounts provide an overview of its transactions. A control account balance that doesn’t match the sub-ledger subtotal should be corrected.

According to Glassdoor, a controller makes a median of roughly $156,000 per year. This includes $111,000 per year of base pay and almost $45,000 in additional forms of compensation. 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. Control account makes for a much cleaner and easier-to-read ledger that’s easier for bookkeepers to use and manage. I’ve struggled with anxiety since childhood, although not to a degree to be medicated.

The Sarbanes-Oxley Act’s Impact on Accounting Controls

Across all of the duties, a controller often works most with the collection, analysis, and consolidation of financial data. Although the controller doesn’t always maintain the annual budget, the controller position monitors variances, summarizes trends and investigates budget deficiencies. The controller may reports material budgeting variances or expenditure variances to upper management.

Definition of a Control Account

A controller also works with the external audit team, assists internal managers will budget preparation, and identifies areas of opportunity to mitigate risk and employ cost savings. Although both the controller and CFO of a company are leaders in finance, they are often two separate positions responsible for different tasks. A controller is more likely to be entangled in general ledgers, trial balances, and financial reports being delivered to more senior management. Meanwhile, a CFO utilizes these reports to focus on more broad, big-picture company positioning.

The general ledger can have hundreds of accounts from asset and liability accounts to income and expense accounts. More over, each account type can have hundreds of smaller accounts called subsidiary accounts. If every single account was included in the general ledger, it would be very large, unorganized, and difficult to use. That is why control accounts are used to summary data from large numbers of related accounts. Control accounts are an essential component of double-entry accounting and constitute the basis of the general ledger. These reports summarise each sub-ledgers total balance, allowing a streamlined analysis of a company’s balance sheet without the lengthy details contained in each.

An Example of a Control Account

Control accounts are typically used to summarize the accounts payable and accounts receivable ledgers. Those ledgers usually contain a vast number of transactions that should be separated into different subsidiary ledgers rather than clogging up the general ledger with too much information. 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. 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.

Most importantly, the ending balance of the subsidiary ledger should match the ending balance of the related controlling account. Small business accounts are kept in a single general ledger used to extract liquidity premium definition a trial balance. For a large business, where there are too many transactions to be managed by only one person, subsidiary ledgers such as the accounts receivable and accounts payable ledger are opened.

Detective Controls

In the case of an accounts receivable control account, the subtotal of the customer balances in the subledger must match up to the control account. If it does not, then there is an error somewhere in the books that must be corrected. Control accounting helps create streamlined financial reports, and can provide an additional verification step to ensure accuracy.

Uses of Control Accounts

Meanwhile, financial controllers own more of the internal reporting process including implementing internal controls, managing the month-end close schedule, and ensuring financial accuracy. As every company will require different qualifications, there is no single career path to becoming a controller. However, many controllers get their start by working in the accounting field, often in public accounting.

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