A controller’s role is heavily (if not exclusively) rooted in dealing with actual transactions. Overseeing both revenue and expense reporting, a controller often does not deal in theory. Meanwhile, an FP&A director leverages historical data to devise future plans that may or may not materialize. These plans may rotate on a quarterly basis if the company decides to reforecast any projections. Last, it is not an industry requirement to obtain a Certified Public Accountant (CPA), Certified Management Accountant (CMA), Chartered Financial Analyst (CFA), or any other type of licensure. For many, these licensures will help and may be a preferred requirement for the role.
The two used most often by businesses are the accounts payable control account and the accounts receivable control account. Accounting software facilitates accurate data segmentation by automatically categorising data and creating control accounts and sub-ledgers. However, additional control accounts may be necessary joint products by-products and co-products cost accounting depending on the company’s size, type, and industry. It’s essential to ensure that each aspect of your business has a control account since it comprises the general ledger used for financial reporting. The fundamental purpose of a control account is to aid in the detection of mistakes in subsidiary ledgers.
- When specific control accounts do not balance, you know that they need to be checked.
- If the trial balance does not actually balance, only the accounts whose control account does not reconcile need to be checked for errors.
- The general ledger account that sums the subsidiary accounts is said to control the balances that are reported in the ledger.
- Take a look at some of the reasons to use, and not to use, a control account.
Doing this allows you to produce a trial balance and balance sheet without all of the transactions displayed. The balance of the control account should always be equal to the balance in the subsidiary ledger accounts. Accounts payable and accounts receivable control accounts are the most frequently used control accounts, although inventory and fixed asset control accounts can also be used. Control accounts are crucial elements of double-entry accounting and form the basis of the general ledger. Functioning as a summary of total balance for the subledger, they provide a focused analysis of a business’s balance sheet. Plus, when it comes to financial reports, the summary balances displayed in control accounts are generally considered sufficient information.
Is a Controller the Same As CFO or VP of Finance?
One such position is the controller (sometimes spelled “comptroller,” but always pronounced “controller”), who is the person responsible for a firm’s accounting-related activities. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own.
The control ledger is a summary account that keeps track of the individual accounts in the ledger and ensures that they are clarified and re-verified. Following this method assists management in establishing a control over ledger posting, therefore reducing the risk of misrepresentation and fraud. Depending on the size and organizational layout of a company, the controller may hold more than one title or be responsible for multiple aspects of finance. In general, especially for larger companies, there are differences between controllers and other high-ranking financial positions.
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. Because of their enormous transaction volume, control accounts are most often used by large businesses. A small business may generally record all of its transactions in the general ledger, eliminating the requirement for a control account-linked subsidiary ledger. Control accounts work as a summary account, presenting the balance of the subsidiary accounts without including the transaction details. Companies using a control account typically post balances from the subsidiary ledgers daily to make sure that they’re always in balance. However, if you’re still using a manual ledger system, the purpose of control accounts is to take the balance of the accounts in the subsidiary ledgers and post the total into the general ledger.
Definition of a Control Account
For finance professionals most serious about achieving controller roles, they must often seek out Big Four positions and earn escalating responsibilities over several years. If Jim had any returns or customer discounts, he would also post them in the control account to make sure that the subsidiary accounts and the control account remain in balance. If someone wanted to see detailed information for accounts receivable or accounts payable, they could use the details in the subsidiary ledger as the information isn’t in the general ledger.
Advantages and Disadvantages of Using Control Accounts
The subsidiary ledger allows for tracking transactions within the control account in further detail. Individual transactions appear in both accounts, but only as an ending balance in the control account. More details such as where the money came from, who it came from and the date it was paid appear in the subsidiary ledger. A control account is a summarised account that maintains the records of the individual accounts in the ledger, and that is clarified and re-verified regularly.
What Are Control Accounts?
When comparing the control accounts and subsidiary accounts, both ending balances should match. If the control account balance doesn’t match the subsidiary ledger, a mistake in calculations may have been made. The main use of a control account is to help identify errors that appear in the subsidiary ledgers. But they also give a business other advantages, such as permitting a single trial balance to be extracted from the general ledger. If the trial balance does not actually balance, only the accounts whose control account does not reconcile need to be checked for errors.
Control Account Limitations
A controller often oversees the department leads within finance for each respective department tied to financial reporting. This may include the accounts payable lead, procurement lead, purchasing lead, financial reporting manager, or payroll manager. In general, CFOs often take a greater presence in external-facing tasks including mergers, acquisitions, or involvement with investors.
.css-g8fzscpadding:0;margin:0;font-weight:700;An Example of a Control Account
A controller may also be called on to lend his or her expertise on investments, creditor relationships, corporate governance, or other areas. The information posted to the accounts receivable control account and the source of that information are shown in the table below. Control accounts are mainly used to help identify errors in the subsidiary ledgers, but the use of them gives a business a number of additional advantages. Another distinct advantage of having a control ledger is the ability to prevent fraud. The subsidiary accounts can be managed by one person, while the control is managed by another.
With accounts receivable, as invoices go out the control account is debited, which increases the balance. And as payments come in, the control account is credited, decreasing the balance. For financial reports, the summary balances provided by the control accounts are generally all that’s needed for analysis.