Controlling accounts are usually the main accounts a business tracks financial information like general ledgers. As a business grows, there are often individuals or entire departments dedicated to the oversight, maintenance, and analysis of subledgers like accounts receivable. Important subledgers can often become their own ecosystem, forming an important foundation to a business’s general ledger as well as larger financial reports.

Companies create subsidiary ledgers whenever they need to monitor the individual components of a controlling general ledger account. But the accounts receivable subsidiary ledger provides quick access to each customer’s balance and account activity. 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, the inventory subsidiary ledger, and the equipment subsidiary ledger.

Subsidiary ledgers provide a separate record of transactions pertaining to individual customers and creditors. The subledger system prevents fraud and errors in the accounting records, and it categorizes the transactions according to three types—the fixed asset sub-ledger, the Accounts Receivable sub-ledger, and the accounts payable sub-ledger. At the end of the accounting period, after the postings have been completed, a list is made of all the individual subsidiary accounts.

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Common examples of subsidiary ledgers are anytime a business wants to backup or reference information from the control account. 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. A subsidiary ledger, or subledger, tracks the details of specific types of transactions and what happens in specific categories within a business’s chart of accounts. 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.

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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. Since companies can have multiple orders with the same vendor and many different vendors, the accounts payable subsidiary ledger keeps track purchasing account manager jobs employment 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. 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.

1. 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.
2. But the accounts receivable subsidiary ledger provides quick access to each customer’s balance and account activity.
3. The general ledger, in turn, allocates these totals into assets, liabilities, and equity accounts.
4. When subsidiary accounts are maintained, it is necessary to post journal entries to both the general ledger (or controlling account) and the subsidiary account.

Postings to the general ledger accounts are likewise indicated by noting the general ledger accounts in the Ref. column. It provides the user with the ability to continuously update the balance after posting each transaction. A financial professional https://www.bookkeeping-reviews.com/what-is-the-product-life-cycle-stages-and-examples/ will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. Finance Strategists has an advertising relationship with some of the companies included on this website.

Posting from Subsidiary Ledgers

At the end of the accounting period, the subtotal for the accounts-receivable subledger is updated in the general ledger, so that there is an accurate snapshot of the amount of cash owed to the business. This process allows the general ledger to stay streamlined without too many clunky details, but those details recorded still are parts of the business’s accounting history. While the general ledger may be enough for day-to-day financial maintenance, detailed subledgers are crucial components of accurate accounting, especially for businesses with a large sales volume.

Types of Subsidiary Ledgers

Postings to the subsidiary ledger accounts are indicated by noting the customer’s account number in the Ref. column. 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. A subsidiary ledger in accounting is a storage and reference ledger for a general ledger main account.

We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. Similar backup information is often necessary for items such as prepaid insurance and plant and equipment. Management needs to know the total it owes its various vendors, how much it owes its individual vendors, and when each payment is due. HighRadius’ Autonomous Accounting Software is a good choice if you are looking to automate your finance & accounting operations. Auditors such as the IRS will require more detail than offered by the general 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. The same concept is typically used for each supplier under the accounts payable account. 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.