What is the relationship between a controlling account and a subsidiary ledger?
|
In accounting, the controlling account (also known as an adjustment or control account[1]) is an account in the general ledger for which a corresponding subsidiary ledger has been created. The subsidiary ledger allows for tracking transactions within the controlling account in more detail. Individual transactions are posted both to the controlling account and the corresponding subsidiary ledger, and the totals for both are compared when preparing a trial balance to ensure accuracy. Show
For example, "accounts receivable" is the controlling account for the accounts receivable subsidiary ledger. In this subsidiary ledger, each credit customer has their own account with its own balance. Thus, while the "accounts receivable balance" can report how much the company is owed, the accounts receivable subsidiary ledger can report how much is owed from each credit customer. Other examples of controlling accounts and their subsidiary ledgers include "accounts payable" (accounts payable subsidiary ledger) and "equipment" (equipment subsidiary ledger).[2] In common use, control accounts refer to those that would, under ideal circumstances, balance to zero. For example, an inventory control account will hold the balance amount between a stock account updated by stock transactions on the balance sheet and the value of stock on hand multiplied by its unit cost. Ideally these would be the same value but rarely are. Reasons for discrepancies include stock losses and gains yet to be "journaled" and the control account measures the differences and provides financial visibility and control of the value of those. If the discrepancy is significant, then actions such as stock counts can be triggered in order to validate stock and correct the balance sheet and clear the control account. Other examples would be the "goods received not invoiced" account. References[edit]
A subsidiary ledger is a detailed list to support a control account. A control account appears on the balance sheet in summary or total, and are accounts like accounts receivable, accounts payable, and inventory. This video explains the theory (the video refers to a Debitor account which is Accounts Receivable and and a Creditor account which is Accounts Payable. A Debtor is a customer and a Creditor is a vendor) This section will look at the transactions for Fooz Ball Town and how to post to subsidiary ledgers for accounts receivable and accounts payable. Accounts Receivable Subsidiary LedgerThe accounts receivable subsidiary ledger will contain an account for each individual customer. The sales, payments, and returns and allowances are recorded into the individual customer accounts as well as the bigger picture (control account) accounts receivable account. For Fooz Ball Town, the sales entries were:
These entries were recorded in the sales journal and cash receipts journal as follows:
These journals would be posted to the Accounts Receivable control account like this:
The customer (subsidiary) ledger would be updated for Robby Red and Bobby Blue as:
At the end of the period, a schedule is prepared to verify (or prove) the Accounts Receivable (control account) balance reported on the balance sheet. This schedule is a listing of all customers with the ending amounts owed and should always match the ending balance in Accounts Receivable. The schedule of accounts receivable for Fooz Ball Town would be:
Note: It would not be necessary to include customers with zero balances but it is included here just so you can see how the subsidiary ledger works. Notice how the schedule of accounts receivable balance equals the ending accounts receivable balance (control account). Accounts Payable Subsidiary LedgerThe accounts payable subsidiary ledgers works the same way as accounts receivable with the control account of accounts payable and the subsidiary ledger a vendor ledger to provide a listing of everyone we owe. The purchases, payments, returns and allowances are recorded in the individual vendor accounts as well as in the accounts payable account. The purchase transactions for Fooz Ball Town are:
These transactions were recorded, under the perpetual inventory method, in the following journals:
These journals would be posted to the Accounts Payable control account like this:
The vendor (subsidiary) ledger would be updated for Gus Grass:
The vendor balance for Gus Grass is $0 and the accounts payable balance is $0. Since both are zero and match, it would not be necessary to prepare a schedule of accounts payable. If there is a balance, a schedule of accounts payable would be prepared in the same manner as accounts receivable. Licenses and AttributionsAll rights reserved content
What is the difference between a control account and subsidiary account?A subsidiary account is used to track information at a very detailed level for certain types of transactions, such as accounts receivable and accounts payable. A control account is a summary-level account in the general ledger that contains aggregated totals.
What is the relationship between the general and subsidiary ledger?Both general ledger and subledger accounts are used to record financial transactions. The primary difference between the two is that the general ledger is a set of master accounts, whereas the subledger is a set of accounts that is a subset of the general ledger.
Which of the following accounts is a control account with a subsidiary ledger?Control accounts commonly supported by subsidiary ledgers include the accounts receivable and accounts payable accounts.
What is the relationship of a subsidiary ledger to a general ledger account and why is it important to reconcile balances monthly?An accounts receivable subsidiary ledger is an accounting ledger that shows the transaction and payment history of each customer to whom the business extends credit. The balance in each customer account is periodically reconciled with the accounts receivable balance in the general ledger to ensure accuracy.
|
