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A control account, often called a controlling account, is a general ledger account that summarizes and combines all of the subsidiary accounts for a specific type. In other words, it’s a summary account that equals the sum of the subsidiary account and is used to simplify and organize the general ledger.
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.
The general ledger account that sums the subsidiary accounts is said to control the balances that are reported in the ledger. Thus, we call it a controlling account. This makes sense because the subsidiary accounts are not directly reported in the GL. They are summarized and posted to the control account that in turn appears in the GL. In this way, the controlling account really does dictate what appears in the GL and what is reported on the financial statements.
Control Accounts are used to summarize the balances of different subsidiary accounts falling under same category of accounts, in other words, they are used to minimize the clutter and details of each and every account and its sub account. For Example, Accounts Receivable is a Control account for various debtors, Accounts Payable is control account for the company's vendor accounts.
The Purposes of control accounts are the following below:
1.To act as a check on the accuracy of the totals of the balances in the sales and purchases ledgers.
2.To provide totals of debtors and creditors quickly when a trial balance is being prepared.
3.To identify the ledger(s) in which errors have been made when there is a difference on the trial balance.
4.To act as an internal check on the work of the sales and purchases ledger clerks to detect errors and deter fraud, under the charge of a responsible person
the purpose of the control accounts is to keep the general ledger free of details yet have the correct balance for the financial statements.
