What is the purpose of subsidiary ledgers?
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 accounts receivable subsidiary ledger shows all the sales made on credit by a business. It provides details on these sales by showing invoice dates and numbers, credit memorandums, payments made against the credit sales, discounts, and returns and allowances.
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 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. A subsidiary ledger can be set up for virtually any general ledger account. However, they are usually only created for areas in which there are high transaction volumes, which limits their use to a few areas.
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If you’re still using a manual accounting system, there are some things you’ll need to pay close attention to when using a subledger. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
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Without this subsidiary ledger, a company with many customers would have difficulty tracking customer payments and transactions. Like other subsidiary ledgers, the accounts receivable subsidiary ledger merely provides details of the control account in the general ledger. Other subsidiary ledgers include the accounts payable subsidiary ledger, inventory subsidiary ledger, and property, plant, and equipment subsidiary ledger.
Subsidiary ledgers provide a separate record of transactions pertaining to individual customers and creditors. 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. For example, your general ledger has only one accounts payable account, whereas your subledger can have an unlimited number of sub-account transactions that make up the total of your accounts payable account. The Accounts Receivable subsidiary ledger shows sales on credit by a business.
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- By contrast, postings to general ledger accounts need to be made only periodically.
- There will likely be reports generated to provide the information formerly contained in the subsidiary ledger.
- 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.
Understanding an Accounts Receivable Subsidiary 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. Otherwise, some late transactions may not be posted into the general ledger until the next reporting period; in this case, the financial statements for the current period and the next period will be incorrect. If you’re tired of maintaining subledgers for your high-volume general ledger accounts, consider making the switch to accounting software.
Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. Your general ledger serves as your chart of accounts, while your subledger is the information that feeds into your general ledger but does not have its own chart of accounts. In other words, the general ledger can function just fine without subledgers, but a subledger requires a general ledger to function properly. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. accounting equation definition This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible.
Then prepare a schedule of accounts receivable and a schedule of accounts payable. 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.
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. Your general ledger is designed to provide the balance of each of the accounts in your chart of accounts, while the subledger is designed to provide you with the details that make up that particular account. Your general ledger account contains only one specific account for each category, while a subledger can have an unlimited number of account transactions. 11 Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.
Companies can have various payables owed to vendors or suppliers at any given time. These payables are short-term debts or IOUs from one company to another company. The total amount of payables owed to suppliers is recorded as accounts payable on the general ledger. 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 coronavirus stimulus checks accounts receivable accounts to sift through when analyzing the main ledger.
To illustrate, management needs to know not only the total of its accounts receivable but also the amount that each individual customer owes. As an example, 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. Since companies are integrating accounting records with their other information into one database, I assume there will be less use of the term subsidiary ledgers in the future. There will likely be reports generated to provide the information formerly contained in the subsidiary ledger. After you have reconciled all of your subledger accounts, be sure that you properly complete the accounting cycle by entering any closing entries or adjusting entries you may have, including any missing transactions.
This situation typically arises in companies with significant sales volume. If your business is very small, and you only have one or two vendors or customers, you can easily track your balances in your general ledger. But once vendor or customer activity increases, you’ll need a way to track the individual transactions that make up the balance of those general ledger accounts. The general ledger is a master ledger containing a summary of all the accounts that a company uses in operating its business. The subsidiary ledgers roll up to the general ledger, which records the aggregate totals of the subsidiary ledgers.
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The sum of all invoices in the accounts receivable subsidiary ledger should equal that of the accounts receivables on the general ledger, also known as the control account. The transaction total in your subsidiary ledger account should always match the total in your general ledger. For example, if you have multiple accounts receivable subledger accounts that currently equal $15,000, your accounts receivable balance in your general ledger should also be $15,000. If the balances do not match, you should reconcile the account to determine the reason for the difference. 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.
November 10, 2022 4:32 am
Categories: Bookkeeping
