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.