Management needs to know the total it owes its various vendors, how much it owes its individual vendors, and when each payment is due. A company needs to review its general ledger regularly to keep track of all the accounts that they currently handle. This is one of the most important practices that one needs to follow when handling a general ledger account. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting.

The accounts payable subsidiary ledger is helpful in providing internal accounting controls. The accounts payable subsidiary ledger amounts can be crosschecked with the aggregate amount reported on the general ledger to prevent errors in reporting. Management can also check to ensure that each invoice from the vendors and suppliers are being recorded. The subsidiary ledger is essentially a worksheet for all of the payables owed to suppliers. The purpose of a subsidiary ledger in a business is to help organize important financial information and monitor transactions. One way for a business to grow and increase sales is to allow customers to purchase products on credit.

Terms Similar to Subsidiary Ledger

Any general ledger that summarizes a subsidiary ledger account is called a control account or master account. This sub ledger lists contains all of the account details for every credit customers including dates, balances, payments, and purchases made by each customer. Even a small company can have hundreds of customers who purchase goods on credit.

If each customer account was reported in the general ledger, there would be several hundred accounts receivable accounts to sift through when analyzing the main ledger. However, they are usually only created for areas in which there are high transaction volumes, which limits their use to a few areas. Examples of subsidiary ledgers are the accounts payable ledger, accounts receivable ledger, fixed assets ledger, inventory ledger, and purchases ledger. Separating the accounts payable ledger duties from the subsidiary ledger duties can streamline your accounting function.

This streamlines finding and using the information should you need to locate a particular payment or invoice. Common examples of subsidiary ledgers are anytime a business wants to backup or reference information from the control account. Balances of control accounts of a general ledger are equal to the total of balances of individual ledger accounts concerned. adp salaries In job order costing systems, the job cost sheets (or job cost records) will serve as the subsidiary ledger containing the details for the general ledger account Work in Process. The Work in Process account will now be a control account containing summary amounts for direct materials, direct labor, factory overhead applied, transfers to finished goods, etc.

Thus, we also refer to the general ledger as the ‘set of master accounts’ since it contains all the information in the subledgers. The general ledger will normally contain a control account for each subsidiary ledger, e.g. sales ledger, purchase ledger, cash book etc. The subsidiary ledger is a chart of specific accounts that are not included in the general ledger. The accounts in the subsidiary ledgers hold more specific information about the accounts that make up the general ledger.

The usefulness of the accounts receivable subsidiary ledger lies in the fact that it can show, at a glance, the account status and amounts owed by a specific customer. For example, the general balance may show a total accounts receivable balance of $100,000, but it will not show which customer owes how much. This information can be gleaned from the accounts receivable subsidiary ledger. The ledger will show, for example, that Customer A owes $15,000, Customer B owes $25,000, Customer C owes $5,000, and so on.

The advantage of Subsidiary Ledger

If the transactions are recorded in a subledger in a different account, then the total sum of the transactions will be recorded in the general ledger. The total amount should match the sum of the concerned line items in the general ledger. A subledger can include all business transaction details such as purchases, receivables, production costs, payables, and payroll. Where subsidiary ledgers are maintained, the individual accounts relating to accounts receivable and accounts payable are not kept in detail in general ledger. In addition to keeping companies organized, subsidiary ledgers can also help control the flow of information.

As the name implies it is used to maintain the privacy of the individuals involved. Cash is also an asset account in the real ledger but due to the level of detail required in the cash account it is normal for a business to maintain a separate subsidiary ledger known as the cash book. A subsidiary ledger in accounting is a storage and reference ledger for a general ledger main account. The subsidiary ledger will have a more detailed and focused insight on transactions related to account activity. Balances of subsidiary account remain up-to-date as the postings are given daily. It helps in knowing receivable – payable, bill payment and realization and satisfying quarries of customers.

subsidiary ledger

One employee can enter accounts payable transactions in the subsidiary ledger while another employee works with the general ledgers. Splitting the duties also helps prevent unauthorized entries from being entered into the subsidiary accounts. Running a trial balance reveals any discrepancies between the accounts payable ledger and the subsidiary ledger.

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Subsidiary Ledgers

Credit purchases are tracked on subsidiary ledgers to forecast financial situations for a company. Credit sales can also represent assets a company possesses on its account receivable. Subsidiary Ledgers are not overly complicated, but you do need to create and maintain them in a certain appropriate fashion. The accounts in the this ledger are predominantly customer accounts with some exceptions.

She received a bachelor’s degree in business administration from the University of South Florida.

Subsidiary Ledger

When the financial statements are prepared, the accounts payable total is listed with other short-term financial obligations under the current liabilities section of the balance sheet. The accounts payable subsidiary ledger is a breakdown of the total amount of payables listed on the general ledger. In other words, the subsidiary ledger contains the individual payables owed to each of the suppliers and vendors, as well as the amounts owed. Since the total of the accounts receivable subsidiary ledger must agree with the balance shown in the accounts receivable general ledger account, the system helps us find mistakes.

For example, they have customers that owe them money, many types of assets, or items owned by the business, inventory, work in progress, and suppliers. In lieu of this system subsidiary ledgers are maintained to know amount receivable from an individual debtor and the amount payable to an individual creditor. Similar posting procedures are followed for subsidiary Accounts Payable and any other subsidiary accounts that are maintained. The number of subsidiary accounts used, as well as the level of detail with which they are maintained, depends on the needs of the firm’s management.

It contains a set of related accounts whose balances in total will equal the balance in the controlling account. The details of the transactions—where they came from, the dates they were paid, and what they’re for—are all tracked in the subsidiary ledger. The information within any subsidiary ledgers and the general ledger is then used to assemble the financial statements for a business. Though keeping an accounts receivable subsidiary ledger in addition to a general ledger requires more work and documentation, it is typically worth the extra effort. The analysis that can go into the detail provided by the accounts receivable subsidiary ledger helps organize a company and allows it to perform in a more targeted manner.

• When the financial statements are prepared, the accounts payable total is listed with other short-term financial obligations under the current liabilities section of the balance sheet.
• A controlling account will backup financial information like accounts receivable, accounts payable, inventory, or work in progress accounts.
• You or someone you know may have a credit card from retailers such as Macy’s, Sears, J.C. Penney, Lowe’s or even an online store.

Customer personal accounts, sometimes referred to as the accounts receivable subsidiary ledger, and used to record amounts outstanding from customers for on account sales. Businesses and organizations use the subsidiary ledger to keep track of inventory, provide insight into customer demographics, and use controlling accounts in a job order costing system. A company will have only one general ledger for each type of account, but it can have as many subsidiary ledgers as it needs to keep track of details. Some companies may have hundreds or even thousands of subsidiary accounts depending on their customer base, how many creditors they have, and other details.

However, do not include the specific accounts in this ledger because it would result in tedious work. Subsidiary ledgers provide a separate record of transactions pertaining to individual customers and creditors. Each entry is posted to both the appropriate general ledger accounts and the individual customer accounts. Transactions may appear in both the subsidiary ledger and the corresponding control account, but those transactions only appear as an ending balance in the control account. Note that each account used by the company has its own account section in the general ledger.