Acct U4 q12

What are controlling accounts and subsidiary ledgers? What is the relationship between them? P.270

Controlling accounts are accounts that are summarized on the general ledger and detailed on a subsidiary ledger. Anytime a subsidiary ledger is used it must be controlled by a controlling account. Examples of controlling accounts include the accounts receivable account and the accounts payable account. Again, each controlling account must have an equal subsidiary account to support the respective controlling account.

Subsidiary accounts allow for more detail than the general ledger and are typically used when such detail is needed. For example, the accounts receivable account is a controlling account that keeps track of how much the company is owed in terms of receivables. The total amount recorded on the general ledger for accounts receivable is the total of the amount owed. However, there are numerous customers and accounts that make up the total for accounts receivable that is recorded on the general ledger. This is where the subsidiary ledger comes in. The subsidiary ledger details each customer's account so that the general ledger remains concise and the owner/operator can have current detailed information on customer accounts that substantiates the summary total on the general ledger. This not only helps the owner/operator identify errors in individual accounts, but it also helps with division of labor issues such as recordkeeping tasks and assignments (Wild, 2007, page 271). By backing up the controlling account from the general ledger with an equal subsidiary ledger that correlates with the general ledger, the organization is providing a more efficient record for analyzing and verifying its records for accuracy.

References

Chiappetta, Larson, Wild, Fundamental Accounting Principles, 18th Ed., McGraw-Hill 2007.

What are controlling accounts and subsidiary ledgers? What is the relationship between them? P.270

Controlling accounts are accounts that are summarized on the general ledger and detailed on a subsidiary ledger. Anytime a subsidiary ledger is used it must be controlled by a controlling account. Examples of controlling accounts include the accounts receivable account and the accounts payable account. Again, each controlling account must have a equal subsidiary account to support the respective controlling account.

Subsidiary accounts allow for more detail than the general ledger does and are typically used when such detail is needed. For example, the accounts receivable account is a controlling account that keeps track of how much the company is owed. The amount recorded on the general ledger is the total of the amount owed. However, there are numerous customers and accounts that make up the total of accounts receivable that is recorded on the general ledger. This is where the subsidiary ledger comes in. The subsidiary ledger details each customer's account so that the general ledger remains concise and the owner/operator can have current detailed information on customer accounts. This not only helps the owner/operator identify errors in individual accounts it also helps with division of labor such as recordkeeping tasks and assignments (Wild, 2007, page 271). By backing up the controlling account from the general ledger with an equal subsidiary ledger that correlates with the general ledger, the organization is providing a more efficient record for analyzing and verifying those records for accuracy.

References

Chiappetta, Larson, Wild, Fundamental Accounting Principles, 18th Ed., McGraw-Hill 2007.

Accounting Principles

Page 225 Describe the internal controls that must be applied when taking a physical count of inventory.

With today's technology it is very easy to maintain inventory records under a perpetual inventory system because each sale and purchase can be updated automatically. However, the actual inventory can vary greatly compared to the ideal inventory. The ideal inventory would equal the beginning inventory plus inventory received minus any recorded sales or transfers out. However, rarely does a company operate under ideal conditions or in ideal scenarios.

Many times the actual usage is very different from the ideal. There are many external and internal factors that can cause the actual inventory to be different than the ideal inventory. One such internal factor is known as internal inventory theft. One such external factor can be as simple as an accidental shortage on an inventory shipment. Similar factors can result in unaccounted overages as well. Taking a regular physical count of inventory enables businesses to identify such shortages or overages in order to correct or take corrective action.

Certain internal controls should be implemented before a physical count of inventory takes place. For instance, counts should be made by someone that has no connection or self-interest in the outcomes of the physical count. In other words, the inventory counter(s) should be from outside the company or at least from a different department that is not directly affected by inventory control. It is also important for the counter(s) to inspect the inventory for its value not only in count, but in legitimacy and condition as well. A pre-numbered inventory ticket should be issued to the assigned inventory counters and each ticket must be returned and accounted for after the physical count. Additionally, it is prudent to perform a separate inventory count by a different counter to validate the accuracy of the initial count (Wild, 2007, page 225).

References

Chiappetta, Larson, Wild, Fundamental Accounting Principles, 18th Ed., McGraw-Hill 2007.