A controlling account is a financial account responsible for maintaining data from subsidiary accounts. For example, accounts receivable represent money owed from customers who purchased goods and services from a company. Each customer typically has his or her own financial account on a company’s accounts receivable journal. One controlling account is in the general ledger, containing the aggregate amount of all accounts in the accounts receivable journal. Other controlling accounts can exist in a company’s financial accounting system.
Accounting systems require the use of several journals that contain detailed information. Journals can include cash receipts and disbursements, accounts payable and receivable, payroll, and other journals. A journal contains detailed information about each financial transaction that occurs in a company’s normal business operations. Information can include names, brief descriptions of transactions, and dates; dollar amounts and offsetting debit or credit and calculations may also be necessary for the entry. This information is not necessary for the general ledger, especially because too much information can clutter the ledger, leading to the use of a controlling account.
Another tool used in conjunction with a controlling account is an aging report or schedule. Accounts receivable commonly has an associated aging report so companies can determine which customers have not paid their bills. The company focuses on these individuals to collect outstanding bills. This schedule also works for accounts payable, which are monies owed by a company to suppliers or vendors. The schedule reports which bills a company has coming due and how much they owe.
General ledgers are the main accounting tool a company uses to prepare financial statements. Each individual and controlling account goes into a trial balance, which is a prefinancial statement report. The trial balance lists each individual account containing financial information. Accountants can review the information for accuracy and validity prior to financial statement preparation. A controlling account may need reconciliation prior to completing the accounting cycle and closing a company’s books.
A controlling account can be highly subject to errors. As the general ledger only reports the aggregate total from a journal, it is possible for inaccurate figures to be in a journal. Accountants need to review the journal and work through each entry for the accounting period. Each period typically corresponds with a calendar month. Accountants look for transpositions, duplicate entries, incorrect calculations, and other errors.
Companies can typically create their own sets of accounting journals, ledgers, and controlling accounts. This flexibility allows a company to create a system that best works for its operations. The use of controlling accounts may or may not be necessary depending on a company’s operations.