What is a Subsidiary Ledger?

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.

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Terms Similar to Subsidiary Ledger

This schedule of accounts receivable—often called an accounts receivable trial balance—is totaled. The general ledger account Accounts Receivable and the subsidiary accounts are shown below in the form of T-accounts rather than the running balance form, for the sake of convenience. Similar subsidiary accounts are maintained for payables and, depending on the firm’s needs, for other accounts such as Property, Plant, and Equipment. First, enter these transactions manually by creating the relevant journals and subsidiary ledgers. Businesses must track a lot of things in order to manage their money and ensure they keep making profits.

Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs. We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Now that you have seen four special journals and two special ledgers, it is time to put all the pieces together. In the wake of the COVID-19 pandemic and escalating tensions with China, American companies are actively seeking alternatives to mitigate their supply chain risks and reduce dependence on Chinese manufacturing. Nearshoring, the process of relocating operations closer to home, has emerged as an explosive opportunity for American and Mexican companies to collaborate like never before.

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. the accounting cycle: 8 steps you need to know 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.

Impersonal 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.

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.

What is a subsidiary ledger?

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.

• The ledger in financial bookkeeping refers to the organization of financial accounts.
• Where subsidiary ledgers are maintained, the individual accounts relating to accounts receivable and accounts payable are not kept in detail in general ledger.
• It can greatly assist in making helpful adjustments to a company’s business model in providing the insight needed to achieve higher revenues and targeted business expansion.

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.

Examples of Subsidiary Ledgers

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.

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.

What is the purpose of subsidiary ledgers?

Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. These cards show such information as the cost of each item, its estimated life, its salvage value (or residual value), and its insurance coverage. If you check Accounts Receivable in the general ledger, you see the balance is $2,989, and the balance in Accounts Payable is $6,071. If the numbers did not match, we would have to find out where the error was and then fix it. Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications.

The total of the subsidiary ledger is equal to the total balance on the general ledger account or to the total balance of the group of subsidiary ledgers related to it. Accounts for assets, liabilities, and revenue can all be general ledger accounts. In a practical sense, a general ledger is like a summary; it gives totals but not the details of where that money comes from or how it can be broken down into individual components.

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.

Accounts payable is the money owed by a business to creditors or other organizations. Subsidiary ledgers are used by businesses to track inventory like goods yet to be sold, cost of storage, and goods or tools needed to complete products. These ledgers can provide a company insight into customer demographics to get a better feel for the market. Subsidiary ledgers can also be used in a job order costing system which can help increase profits by tracking detailed information in several accounts. Without this subsidiary ledger, a company with many customers would have difficulty tracking customer payments and transactions.

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.