what is a subsidiary ledger

First, it groups related accounts into one ledger that can be easily totaled and analyzed. It is much easier to review data when it is organized and grouped together. This record groups all of the vendors and trade debtors’ accounts together in one place rather than having them spread throughout the accounting system.

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The individual cards serve as a subsidiary ledger to the controlling Equipment account. The Accounts Receivable account summarizes information about the beginning balance, the total of all sales and cash collected on account for the period, and the total owed by all of the firm’s customers at the end of the period. In order to research accounting information when a subsidiary ledger is used, you need to drill down from the general ledger to the appropriate subsidiary ledger, where the detailed information is stored. The total should be equal to the balance stated in the related general ledger account.

What should be included in a subsidiary ledger?

what is a subsidiary ledger

The general ledger, in turn, allocates these totals into assets, liabilities, and equity accounts. Within most accounting systems, the process is performed via accounting software. The general ledger is not able to provide this much detail and so having an accounts receivable subsidiary ledger, or any other subsidiary ledger for that matter, is a real benefit to a company’s operations. 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. Record the following transactions for Store Inc. in the special journals and post to the general ledger provided. Use the perpetual inventory method and the gross method of dealing with sales terms.

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What Is an Accounts Receivable Subsidiary Ledger?

Instead, all of these customer accounts are contained into one subsidiary ledger and reported on the main record as a single number. Accountants and bookkeepers can look through the sub if they want more details about individual customer accounts. This section will look at the transactions for Fooz Ball Town and how to post to subsidiary ledgers for accounts receivable and accounts payable. As an example, how to write an invoice let’s say The Ford Motor Company has a general ledger balance that shows a total accounts payable balance of $106 million. However, management wants to see which suppliers are owed and the amounts owed. Each individual account in the subsidiary accounts receivable ledger should show the customer’s name, address, credit rating, and credit limit, along with any other vital payment information.

The balance in the customer accounts is periodically reconciled with the accounts payable balance in the general ledger to ensure accuracy. The accounts payable subsidiary ledger is also commonly referred to as the AP sub-ledger or subaccount. One way businesses get more sales is to allow customers to buy on credit. 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. In order to keep track of how much you owe, every customer must have his or her own account with each business.

In this case, inventory is the controlling account, and there may be subsidiary accounts for each type of item, such as nuts, bolts, pounds of steel, microchips, etc. Banks are common uses of subsidiary ledgers because of the number of customers they have on credit sales for various products as well as accounts payable for loans banks owe on. Common examples of subsidiary ledgers are anytime a business wants to backup or reference information from the control account. Each entry is posted to both the appropriate general ledger accounts and the individual customer accounts. 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.

Otherwise, the company would have one big accounts receivable amount and not know who owes them or how much. 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. Manufacturing personnel will have full access to the job cost sheets without having access to other information in the general ledger. Part of the period-end closing process is to post the information in a subsidiary ledger to the general ledger. Posting is usually a manual processing step, so you need to verify that all subsidiary ledgers have been appropriately completed and closed before posting their summarized totals to the general ledger.

This way all vendor balances are located in one spot and can be analyzed individually or as a group. There is no need to set up subsidiary ledgers from a control or data access perspective, since https://www.quick-bookkeeping.net/ you can usually restrict access to individual accounts in better accounting software packages. Another use for a subsidiary ledger is keeping track of inventory used to manufacture products.

  1. 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.
  2. 11 Financial is a registered investment adviser located in Lufkin, Texas.
  3. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.
  4. Subsidiary ledgers are used when there is a large amount of transaction information that would clutter up the general ledger.

Other subsidiary ledgers include the accounts payable subsidiary ledger, inventory subsidiary ledger, and property, plant, and equipment subsidiary ledger. 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, https://www.quick-bookkeeping.net/how-to-file-taxes-with-irs-form-1099/ the inventory subsidiary ledger, and the equipment subsidiary ledger. Each of these customers would have an individual account in the subsidiary ledger so you can track their increases in amount owed and payments made under the controlling accounts receivable account. The balance in your accounts receivable would be the total of each of the individual accounts, which would be $60.

First, enter these transactions manually by creating the relevant journals and subsidiary ledgers. Similar posting procedures are followed for subsidiary Accounts Payable and any other subsidiary accounts that are maintained. Company ABC wants to see how much a certain customer owes on credit for a product they are making payments on. General ledgers record all accounts and can be paired with subsidiary ledgers to eliminate any errors. The purpose of a subsidiary ledger is to back up data from the general ledger’s controlling account. This ledger is used to correct any discrepancies in the controlling account.

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.

Postings to the general ledger accounts are likewise indicated by noting the general ledger accounts in the Ref. column. Management needs to know the total it owes its various vendors, how much it owes its individual vendors, and when each payment is due. With this job cost sheet definition information, a company can monitor separate client accounts to see how much they owe and how much they paid thus far in the duration of the credit sale of a product. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching.

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