Question

You are studying with some classmates and are reviewing each other’s responses to the following question:
“Briefly explain why accounts receivable is called a control account.”

One classmate responded as follows:
“It is called a control account because it is an account that helps keep specific information about each customer. Therefore it helps to control and keep track of how much each customer owes to the company.”

Select the most appropriate response that your classmate could have made rather than the one that they made in the question.

A)Accounts receivable is called a control account because it is controlled by the accounts receivable subledger. The subledger includes an account for each of the company’s customers that are granted credit. Accounts receivable does not change unless one of its subledger accounts increases or decreases.

B)Accounts receivable is called a control account because it is a summary of the balances of many individual customer accounts in the accounts receivable subledger. The accounts in the subledger keep track of amounts owed by individual customers. No change to accounts receivable can occur unless there is a corresponding change to a subledger account.

C)Accounts receivable is called a control account because it summarizes all of the company’s individual customer accounts. A new account is created whenever a transaction occurs, and the control account shows the balance of all these amounts. Accounts receivable does not change unless there is a change to the accounts receivable subledger.

D)Accounts receivable is called a control account because it is controlled by the accounts receivable subledger. The accounts in the subledger are individual accounts for every customer the company has. The control account is only updated at the end of each accounting period, while the subledger is updated daily.

Answer 1

Answer :

The accounts receivable control account just keeps track of the dollar amount of accounts receivable outstanding, the accounts receivable subledger is used to manage the details of each customer. The subledger will have the details of all the accounts receivable transactions for each individual customer.

The total of all account balances in the subledger must agree to the balance in the Accounts Receivable control account. A regular (monthly) accounts receivable reconciliation should be done to ensure that the posting process is accurate.