Firstly, in the subsidiary ledger, you will maintain separate records of each customer and supplier (cash outflows and cash inflows). By doing this, you can track the record of every customer; their opening and ending balances as well as how much you owe or have to pay. Secondly, then you will make a control account in which you put the summary amount- total sales with its invoice price, total collections, or total payout.

• One account is debit, and another account is credit with a balanced amount.
• Contra entry occurs when you have a creditor that is a debtor at the same time.
• In this case there are 1-26 categories based on the alphabetical order of names of debtors starting with “A” to “Z”.
• A control account works as an adjusting and controlling account that summarizes and sums up balances of all subsidiary accounts’ information of a specific account type in a general ledger.

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. While subsidiary accounts are critical for recording a company’s transactions, control accounts allow for high-level analysis by simply focusing on the balances of each account. They are especially important for reconciliation in large companies with a high volume of transactions when only the balance of the account is needed.

Accounts Receivable Subsidiary Ledger

Typically, this includes total credit sales for a day, total collections from customers for a day, total returns and allowances for a day, and the total amount owed by all customers. At the period end when the trial balance is prepared, there are chances that it may not agree (The total of all Debits is not equal to the total of all credits). For Example in large organizations with multiple products and extensive credit sales, there will be many customers, so many personal ledgers for customers accordingly. In the manual accounting system, it is very likely that some transactions may get omitted from posting into ledgers.

Therefore, to ensure that all entries are posted correctly and to reduce errors in data recording, organizations deploy various control mechanisms. The backbone of the accounting, Accounting Equation entails being balanced every time. This means that the total of Debit Sides in any accounting https://www.bookstime.com/blog/how-to-start-bookkeeping-business system shall be equal to the total of the Credit side. Control accounts could also be used for accounts payable, equipment, and inventory. Control accounts are general ledger accounts in your Chart of Accounts that are used to reconcile your general ledger with your clients/matters.

What is the purpose of control accounts?

If at any time the control account and the subsidiary ledger are not in balance, the subsidiary ledger will need to be reconciled to locate and correct the error. Transactions are entered daily, monthly, or within a particular duration in the individual creditors’ control account account. Maintaining the individual entries for every individual account is an ideal accounting practice. A creditors control account acts as the holding account of purchased credit notes and invoices before they are deposited in the bank account.