Bookkeeping

What is Subsidiary Ledger? Meaning & Definition

This section will look at the transactions for Fooz Ball Town and how to post to subsidiary ledgers for accounts receivable and accounts payable. 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. Subsidiary ledgers track transactions within their control accounts in greater detail.

  • They contain information that helps track numbers in a business or offers additional details to help understand more about where numbers have come from and what they mean.
  • The combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in the general ledger.
  • From here, the balances of the related subsidiary ledgers are totaled and transferred to the general ledger account.
  • Other subsidiary ledgers include the accounts payable subsidiary ledger, inventory subsidiary ledger, and property, plant, and equipment subsidiary ledger.

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. The subsidiary ledger is also commonly referred to as the subledger or subaccount. Subsidiary Ledgers activity method of depreciation example limitation 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. Focusing on the customer accounts, this makes sense for a subsidiary ledger chart because a general ledger would become increasingly dense if every customer and individual account was included in the general ledger.

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At the end of the accounting period, after the postings have been completed, a list is made of all the individual subsidiary accounts. Postings to the subsidiary ledger accounts are indicated by noting the customer’s account number in the Ref. column. It contains a set of related accounts whose balances in total will equal the balance in the controlling account. Note that each account used by the company has its own account section in the general ledger.

Doing so makes for an efficient accounting of the business’s accounts and transactions. This won’t be an issue if the business only has a handful of customers or suppliers, but if the business has many customers or suppliers, then it will be hard to keep track of each account. Usually, the date of purchase, price and details are noted along with the depreciation rate being applied.

What is a Subsidiary Ledger?

This involves recording all financial transactions in the primary books of accounts and subsequent posting to the secondary accounts. A ledger is the accounting book that comprises of all accounts to which the journal entries are posted. Balanced ledger accounts are compiled into a trial balance from which the entity’s profit and loss and balance sheet are prepared.

Subsidiary Ledger

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What is the difference between a subsidiary ledger and a general ledger?

The vice-president of finance or the chief finance office (CFO), as well as the accountants, should always have access to such books. Either way, it’s much easier to track these mistakes the fewer transactions you have to check. This makes it possible to know the current balance of each account on a daily basis as opposed to a general ledger that’s only updated at the end of the period. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.

Only allow authorized personnel to have access to your business’s subsidiary ledgers

It provides the user with the ability to continuously update the balance after posting each transaction. Now that you have seen four special journals and two special ledgers, it is time to put all the pieces together. A subsidiary ledger’s effectiveness will depend on the person that handles it.

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It is a detailed repository for specific transaction categories, like individual customer accounts or inventory items. Transactions are recorded, encompassing essential details such as dates and amounts. A subsidiary ledger contains the details to support a general ledger control account. For instance, the subsidiary ledger for accounts receivable contains the information for each of the company’s credit sales to customers, each customer’s remittance, return of merchandise, discounts, and so on. With these details in the subsidiary ledger, the Accounts Receivable account in the general ledger can report summary amounts for the accounts receivable activity.

Within each account, credit invoices sent to a customer and the payments they make are recorded so the business knows exactly which customers owe money and can be chased correctly. The individual accounts are then added together periodically and compared to the sales ledger control account, carrying out what is known as the sales ledger reconciliation. 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.

But the accounts receivable subsidiary ledger provides quick access to each customer’s balance and account activity. The accounts payable subsidiary ledger is similar to other subsidiary ledgers in that it merely provides details of the control account in the general ledger. Other subsidiary account ledgers include the accounts receivable subsidiary ledger, the inventory subsidiary ledger, and the equipment subsidiary ledger.

Since the GL is simplified and the sub accounts are totally according to their transaction types, errors in customer accounts or vendor payments can be identified more easily. The Accounts Receivable subsidiary ledger shows sales on credit by a business. The ledger provides invoice dates and numbers, credit memorandums, payments made against the credit sales, discounts, and returns and allowances. Subsidiary ledgers provide a separate record of transactions pertaining to individual customers and creditors.

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