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What is a Subsidiary Ledger?

Subsidiary Ledger

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Subsidiary Ledger

A subsidiary ledger, also known as a sub-ledger or detail ledger, is a ledger designed to provide detail for a single general ledger account. The general ledger may contain summary-level data for a particular account, while the subsidiary ledger provides the detailed transactions that comprise the general ledger’s summary balance.

Each account in a subsidiary ledger relates to a specific item or individual, and the combined balances of all accounts in the subsidiary ledger should equal the balance of the related general ledger account.

Common Types of Subsidiary Ledgers:

  • Accounts Receivable Subsidiary Ledger: Contains individual accounts for each customer. Each account details transactions like sales, payments, and allowances related to that particular customer. The total of all customer accounts in this ledger should equal the balance of the Accounts Receivable account in the general ledger.
  • Accounts Payable Subsidiary Ledger: Contains individual accounts for each supplier or vendor. Each account details transactions like purchases, payments, and other adjustments related to that particular supplier. The total of all supplier accounts in this ledger should equal the balance of the Accounts Payable account in the general ledger.
  • Inventory Subsidiary Ledger: Details each type of inventory item, including quantities and costs. The combined total of this ledger would match the general ledger’s Inventory account.
  • Fixed Assets Subsidiary Ledger: Lists each fixed asset (like equipment, buildings, and vehicles), detailing the cost, accumulated depreciation, and net book value. The combined totals should match the related accounts in the general ledger.

Benefits of Subsidiary Ledgers:

  • Detail Tracking: Allows for the tracking of detailed information related to specific items or individuals.
  • Efficiency: Facilitates quicker and more efficient look-up of individual transaction details.
  • Error Identification: Makes it easier to identify discrepancies by comparing total balances with the general ledger.
  • Delegation: Certain tasks can be delegated to specialized departments. For instance, the credit department might manage the accounts receivable subsidiary ledger, while the purchasing department handles the accounts payable subsidiary ledger.

Example of a Subsidiary Ledger

Let’s illustrate the concept of subsidiary ledgers with a fictional example:

Scenario: “CityBooks, a Bookstore Chain”

Background: CityBooks has three retail locations in a city. They sell books to customers on credit and also purchase books from multiple publishers on account. They use a general ledger to maintain summary records of their accounts and subsidiary ledgers to manage details.

  1. Accounts Receivable Subsidiary Ledger: In their general ledger, CityBooks has an Accounts Receivable balance of $5,000. This amount is the total they expect to receive from all customers.

In the Accounts Receivable subsidiary ledger:

  • Customer A owes $2,500 for a bulk purchase of novels.
  • Customer B owes $1,500 for various children’s books.
  • Customer C owes $1,000 for a collection of history books.

Each customer’s transaction history, including dates of purchase, specific books bought, payments made, and any discounts or returns, would be recorded in individual accounts within this ledger.

  1. Accounts Payable Subsidiary Ledger: The general ledger shows an Accounts Payable balance of $7,000, representing the total CityBooks owes to publishers.

In the Accounts Payable subsidiary ledger:

  • Publisher X is owed $4,000 for a shipment of new releases.
  • Publisher Y is owed $2,000 for a collection of biographies.
  • Publisher Z is owed $1,000 for assorted non-fiction books.

Each publisher’s transaction history, including order dates, specific books ordered, payments made, and any discounts received, would be recorded in individual accounts within this ledger.

Month-End Reconciliation:

At the end of the month, CityBooks reconciles its subsidiary ledgers with the general ledger.

  • They ensure that the total of all individual customer balances in the Accounts Receivable subsidiary ledger ($2,500 + $1,500 + $1,000) equals the Accounts Receivable balance in the general ledger ($5,000).
  • Similarly, the total of all individual publisher balances in the Accounts Payable subsidiary ledger ($4,000 + $2,000 + $1,000) should match the Accounts Payable balance in the general ledger ($7,000).

If there’s any discrepancy between the subsidiary ledgers and the general ledger, CityBooks would investigate to find the source of the discrepancy and correct it.

This example illustrates how CityBooks, using subsidiary ledgers, can keep detailed records of individual transactions with customers and publishers while maintaining a summarized view in the general ledger. The subsidiary ledgers allow CityBooks to manage and track specific details without cluttering the general ledger.

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