What is the relationship between a controlling account and a subsidiary ledger?

• A. The subsidiary ledger contains only summary information, while the controlling account contains detailed transactions.
• B. The subsidiary ledger summarizes the balances of all controlling accounts.
• C. The controlling account is used only for internal management purposes, while the subsidiary ledger is used for external reporting.
• D. The controlling account balance equals the sum of the balances in its subsidiary ledger.

Answer: (D)

Verified step by step guidance

1. Understand the concept of a controlling account: A controlling account is a general ledger account that summarizes the total balances of individual accounts in a subsidiary ledger.
2. Understand the concept of a subsidiary ledger: A subsidiary ledger contains detailed information about individual accounts that are grouped under a controlling account. For example, the Accounts Receivable controlling account may have a subsidiary ledger listing individual customer balances.
3. Recognize the relationship: The balance of the controlling account in the general ledger must equal the sum of the balances of all individual accounts in the subsidiary ledger. This ensures accuracy and consistency between the general ledger and subsidiary ledger.
4. Clarify the purpose: The controlling account provides a summary for financial reporting purposes, while the subsidiary ledger provides detailed information for internal management and tracking.
5. Apply the principle: When reconciling accounts, always ensure that the total of the subsidiary ledger matches the balance of the controlling account to maintain accurate financial records.