7 4 Prepare a Subsidiary Ledger Principles of Accounting, Volume 1: Financial Accounting
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Researching with Subsidiary Ledgers
- The use of accounting software can simplify the process of maintaining multiple subledger accounts, eliminating the need to record multiple transactions manually.
- 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.
- A subsidiary ledger contains the details to support a general ledger control account.
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- This record groups all of the vendors and trade debtors’ accounts together in one place rather than having them spread throughout the accounting system.
Since bookkeeping using ledgers is older than the United States, it was an ingenious way to double-check without having to actually do everything twice. Today, computerized accounting information systems use the same method to store and total amounts, but it takes a lot less time. An accounts payable subsidiary ledger is an accounting ledger that shows the transaction history and amounts owed to each supplier and vendor. An accounts payable (AP) is essentially an extension of credit from a supplier that gives a business (the buyer in the transaction) time to pay for the supplies. The subsidiary ledger records all of the accounts payables that a company owes. Record all transactions using the sales journal, purchases journal, cash receipts journal, cash disbursements journal, and the general journal and post to the accounts receivable and accounts payable subsidiary ledgers.
If you’re using accounting software to manage your business finances, your software will automatically create subledger accounts for you, eliminating the need to track these transactions separately. Accounting software will render the subledger vs. general ledger issue irrelevant. There is no need to set up subsidiary ledgers from a control or data access perspective, since you can usually restrict access to individual accounts in better accounting software packages. Part of the period-end closing process is to post the information in a subsidiary ledger to the general ledger.
The ledger provides invoice dates and numbers, credit memorandums, payments made against the credit sales, discounts, and returns and allowances. The total should be equal to the balance stated in the related general ledger account. First, enter these transactions manually by creating the relevant journals and subsidiary ledgers. 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.
Since companies can have multiple orders with the same vendor and many different vendors, the accounts payable subsidiary ledger keeps track of what’s owed without having to make numerous accounting entries on the general ledger. The subsidiary ledger is essentially a worksheet for all of the payables owed to suppliers. A subsidiary ledger stores the details for a general ledger control account. Once information has been recorded in a subsidiary ledger, it is periodically summarized and posted to a control account in the general ledger, which in turn is used to construct the financial statements of a company. Most accounts in the general ledger are not control accounts; instead, individual transactions are recorded directly into them. Subsidiary ledgers are used when there is a large amount of transaction information that would clutter up the general ledger.
General ledgers and subledgers have different numbers of accounts
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.
Similar backup information why the irs discontinued the e is often necessary for items such as prepaid insurance and plant and equipment.
But whether you record your subledger accounts automatically or manually, they are a necessity for managing your small business accounting properly, so be sure they’re done right. 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. Your accounts receivable general ledger has a balance of $15,000 at the close of 2020, matching your accounts receivable subledger, which includes seven distinct customer balances.
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. This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible.
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.
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. These are called subsidiary accounts and are placed in a subsidiary accounts receivable 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.
Rather than having multiple related accounts clogging up the main ledger system, a single subsidiary ledger can sum and report the totals of all related accounts with a single entry. 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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Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . 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. Now that you have seen four special journals and two special ledgers, it is time to put all the pieces together. Though designed to function together, there are quite what is a purchase order definition and meaning a few differences between a general ledger and a subledger. We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources.
Understanding an Accounts Receivable Subsidiary Ledger
While the general ledger is the backbone of your double-entry accounting system, subledgers play an important role as well, detailing the transactions that make up your general ledger balances. Finance Strategists is a leading financial education organization that connects people with financial professionals, priding itself on providing accurate and reliable financial information to millions of readers each year. Similar posting procedures are followed for subsidiary Accounts Payable and any other subsidiary accounts that are maintained.
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It provides the user with the ability to continuously update the balance after posting each transaction. Management needs to know the total it owes its various vendors, how much it owes its individual vendors, and when each payment is due. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. 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. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.
November 11, 2022 3:54 am
Categories: Bookkeeping
