Subsidiary ledger
Subsidiary ledger is in short "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 calles a control account or master account" [1]. A bit more detailed it is described in another book. There is information in it that in a separate book called a subsidiary ledger, there can be individual accounts that combine common characteristics. In the primary ledger, there are included profit and loss accounts and balance sheets. This in turn is called, as already mentioned, the general ledger. In this book there is also an subsidiary ledger, presented by means of a summarizing/controlling account. Balance amounts in both cases must be consistent [2].
Common Subsidiary Ledgers
We stand out three common subsidiary ledgers. These are [3]:
- The accounts receivable subsidiary ledger, otherwise customers ledger, contains an alphabetical list of individual customer accounts. The checking account in the general ledger takes the form of Accounts Receivable.
- The accounts payable subsidiary ledger, otherwise creditors ledger, contains an alphabetical list of individual creditor accounts. The checking account in the general ledger takes form of Accounts Payable.
- The inventory subsidiary ledger, otherwise inventory ledger, contains an list of individual inventory according to item number/bar code. The checking account in the general ledger takes form of Inventory.
It is worth adding that the last book is used in a continuous inventory system.
Advantages of Subsidiary Ledgers
They have some advantages such as [4]:
- "They show in a single account transactions affecting one customer or one creditor, thus providing up-to-date information on specific account balances.
- They free the general ledger of excessive details. As a result a trial balance of the general ledger does not contain vast numbers of individual account balances.
- They help locate errors in individual accounts by reducing the number of accounts in one ledger and by using control accounts.
- They make possible a division of labor in posting. One employee can post to the general ledger while someone else posts to the subsidiary ledgers".
Examples of Subsidiary ledger
- Accounts receivable subsidiary ledger: This type of subsidiary ledger contains detailed accounts for each customer who has an outstanding balance. Each customer account has its own individual balance that, when added together, equals the total balance of the accounts receivable control account in the general ledger.
- Accounts payable subsidiary ledger: This type of subsidiary ledger contains detailed accounts for each vendor or supplier who is owed money by the company. Like accounts receivable, each vendor account has its own individual balance that, when added together, equals the total balance of the accounts payable control account in the general ledger.
- Inventory subsidiary ledger: This type of subsidiary ledger contains detailed accounts for each type of inventory that the company has on hand. This ledger tracks the quantity and value of the inventory items. The total balance of the individual inventory accounts in the subsidiary ledger must equal the total balance of the inventory control account in the general ledger.
- Fixed assets subsidiary ledger: This type of subsidiary ledger contains detailed accounts for each type of fixed asset that the company owns. This ledger tracks the quantity and value of the fixed assets, such as buildings, furniture, and equipment. The total balance of the individual fixed asset accounts in the subsidiary ledger must equal the total balance of the fixed asset control account in the general ledger.
Limitations of Subsidiary ledger
Subsidiary ledgers have several limitations, including:
- Manual data entry: Subsidiary ledgers must be manually updated with individual account information, which can be time-consuming and error-prone.
- Time consuming: Subsidiary ledgers must be manually updated with individual account information, which can be time-consuming.
- Data redundancy: Subsidiary ledgers can lead to data redundancy and duplication of effort, as the same data may be entered in multiple locations.
- Limited access: Subsidiary ledgers are often limited to a single user or department, making it difficult to access data across multiple locations or departments.
- Lack of accuracy: Subsidiary ledgers can be prone to errors due to manual data entry and limited access, which can lead to inaccurate financial reporting.
A subsidiary ledger is a collection of accounts that are related to a specific account in the general ledger. Other approaches related to subsidiary ledgers include:
- Account Analysis: This approach involves analyzing the individual accounts in the subsidiary ledger in order to identify any trends or irregularities.
- Reconciliation: This approach involves reconciling the balances in the subsidiary ledger to the corresponding balance in the general ledger.
- Budgeting: This approach involves budgeting the accounts in the subsidiary ledger in order to identify any areas of potential overspending.
- Monitoring: This approach involves monitoring the accounts in the subsidiary ledger in order to identify any changes that may require further investigation.
In summary, a subsidiary ledger is a collection of accounts that are related to a specific account in the general ledger and other approaches related to subsidiary ledgers include account analysis, reconciliation, budgeting, and monitoring.
Footnotes
| Subsidiary ledger — recommended articles |
| Subsidiary account — Control account — Sub ledger — Open item — Purchases ledger — Closing entries — Nominal account — Book of original entry — Stock register |
References
- Gilbertson C.B., Lehman M.W. (2009), "Fundamentals of Accounting: Course 1", Cengage Learning, USA, vol. 9
- Kimmel P.D, Weygandt J.J, Kieso D.E. (2011), "Accounting: Tools for Business Decision Makers", John Wiley & Sons, USA, vol. 4
- Minbiole E.A. (2007), "CliffsQuickReview Accounting Principles I", Houghton Mifflin Harcourt, USA
- Needles B.E., Powers M., Crosson S.V. (2011), "Principles of Accounting", Cengage Learning, USA, vol. 11
- Warren C.S, Reeve J.M., Duchac J. (2009), "Financial And Managerial Accounting", Cengage Learning, USA, vol. 10
- Weygandt J.J., Kimmel P.D., Kieso D.E. (2010), "Financial Accounting", John Wiley & Sons, USA, vol. 7
Author: Angelika Guzik
