Control Accounts and Subsidiary Ledgers
A control account is a type of general ledger which provides a summary of the balances within a subsidiary ledger. This account simplifies the financial information contained in the general ledger, yet ensures that the information is accurate for financial statements. So, only the most vital or applicable information is presented, while the details are instead submitted to associated subsidiary ledgers. Subsidiary ledgers contain the details of financial information listed in a general ledger control account. Note that the balances in a control account and the associated subsidiary ledger must be equal.
Control accounts are utilized because most employees within a business do not need to know or may be overwhelmed by the full details and only need to know the basics of an account. On the other hand, managers may require the full information and have access to these specialized accounts.
Two common control accounts include accounts receivable and accounts payable. In accounts receivable, money is owed by outside companies to the business. Though a full invoice would be received, only the total sales or collections would be detailed in the general ledger. However, the full information would be recorded in the accounts receivable control account. Similarly, accounts payable, which details money owned by the business, would be recorded in full in the accounts payable control account. The general ledger, on the other hand, would only note expense amounts.