The different types of accounts and necessary subledgers are determined by the business and product. For example, many types of businesses have accounts receivable (AR) and/or accounts payable (AP) on their chart of accounts. Both require subledgers to record the details of customer transactions in order to track money flowing in and out of the business on credit. For example, as shown above, the balance of accounts payable or general ledger will be equal to the total of balances of individual accounts – X, Y and Z of the accounts payable subsidiary ledger. In the double-entry system, each financial transaction affects at least 2 different ledger accounts.
In the subsidiary ledger, postings are given daily in the individual subsidiary ledger accounts, and balances are ascertained daily. Both general ledgers and subsidiary ledgers are an important part of an entity’s accounting system. The subsidiary ledger accounts act as an intermediary between the journal and the general ledger accounts whereas the general ledger is the pathway to the trial balance.
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. When subsidiary accounts are maintained, it is necessary to post journal entries to both the general ledger (or controlling account) and the subsidiary account. 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.
In contrast to this, in a computerized system, for each transaction, the user determines the type of transaction it is and enters it in the appropriate data entry screen. The computer then automatically places the transactions in transaction files (the equivalent of journals in a manual system). The user then instructs the system to post the transaction to the subsidiary ledger and at the end of the month to the general ledger. Yes, the accounts receivable is a subledger since all the credit sale accounts of a business are recorded in the same. It is used to keep track of all the information on the amounts invoiced and memos issued to the customers.
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If the numbers did not match, we would have to find out where the error was and then fix it. A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. Muntasir Minhaz Muntasir runs his own businesses and has a business degree. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Balances of subsidiary account remain up-to-date as the postings are given daily. It helps in knowing receivable – payable, bill payment and realization and satisfying quarries of customers. For example, account receivable $4,000 and balances of individual accounts (A – $2,000 + C – $2,000) $4,000 as shown in the above example are equal. 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. A subsidiary ledger is an addition of a general ledger used to record each account’s receivables and accounts payable separately.
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 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.
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. Using a ledger, you can maintain an accurate record of your business’s financial transactions, generate financial reports, 3 3 process costing weighted average and monitor business results. A ledger account is a record of all transactions affecting a particular account within the general ledger. Individual transactions are identified within the ledger account with a date, transaction number, and description to make it easier for business owners and accountants to research the reason for the transaction. The schedule of accounts receivable for the customers in our example is shown next.
Some more examples of subsidiary ledgers are the accounts payable ledger, accounts receivable ledger, fixed assets ledger, inventory ledger, and purchases ledger. 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. Companies can maintain ledgers for all types of balance sheet and income statement accounts, including accounts receivable, accounts payable, sales, and payroll.
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. A subsidiary ledger is useful to accountants and bookkeepers for a variety of reasons. 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.
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. Then prepare a schedule of accounts receivable and a schedule of accounts payable. Companies create subsidiary ledgers whenever they need to monitor the individual components of a controlling general ledger account. 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.
Otherwise, some late transactions may not be posted into the general ledger until the next reporting period. The balance of accounts receivable $4,000 of the general ledger is equal to the total balance $4,000 of individual ledger accounts of the subsidiary ledger. Where subsidiary ledgers are maintained, the individual accounts relating to accounts receivable and accounts payable are not kept in detail in general ledger. Only the accounts receivable and accounts payable columns are posted to the subsidiary ledgers. Another feature of the general ledger is that it records the transactions that take place in the subledger accounts.
Preparing a ledger is vital because it serves as a master document for all your financial transactions. Since it reports revenue and expenses in real-time, it can help you stay on top of your spending. The general ledger also enables you to compile a trial balance and helps you spot unusual transactions and create financial statements. Preparing a ledger is important as it serves as a master document for all your financial transactions. The general ledger also helps you compile a trial balance, spot unusual transactions, and create financial statements.
Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. Though designed to function together, there are quite a few differences between a general ledger and a subledger. Janet Berry-Johnson, CPA, is a freelance writer with over a decade of experience working on both the tax and audit sides of an accounting firm. She’s passionate about helping people make sense of complicated tax and accounting topics. Her work has appeared in Business Insider, Forbes, and The New York Times, and on LendingTree, Credit Karma, and Discover, among others.
A subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account. The general ledger account that summarizes a subsidiary ledger’s account balances is called a control account or master account. For example, an accounts receivable subsidiary ledger (customers’ subsidiary ledger) includes a separate account for each customer who makes credit purchases. The combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in the general ledger.