Why Does the Accounts Payable Ledger Require a Subsidiary Ledger?

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At the end of the accounting period, after the postings have been completed, a list is made of all the individual subsidiary accounts. A subsidiary ledger is used to keep track of the details for a specific control account within a company’s general ledger. Another feature of the general ledger is that it records the transactions that take place in the subledger accounts.

For example, individual accounts receivable fall under the accounts receivable subsidiary ledger. 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. Record the following transactions for Store Inc. in the special journals and post to the general ledger provided. Use the perpetual inventory method and the gross method of dealing with sales terms. Companies can have various payables owed to vendors or suppliers at any given time.

Subsidiary ledger definition

In other words, we can say that the subledger is a part of the general ledger. The trial balance, though, has no connection with the general ledger (it is a statement or worksheet where all the records of debit and credit entries are stored in two equal columns). When a business has only a small number of accounting transactions and accounting staff then the double entry bookkeeping postings can all be maintained in a single ledger known as the general ledger. Controlling accounts are usually the main accounts a business tracks financial information like general ledgers. The Accounts Receivable subsidiary ledger shows sales on credit by a business. The ledger provides invoice dates and numbers, credit memorandums, payments made against the credit sales, discounts, and returns and allowances.

Manufacturing personnel will have full access to the job cost sheets without having access to other information in the general ledger. 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. 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.

Accounts Payable ledger or Purchase Ledger

The sum of all invoices in the accounts receivable subsidiary ledger should equal that of the accounts receivables on the general ledger, also known as the control account. The accounts payable ledger records your accounts payable transactions in chronological order. However, the accounts payable ledger only records the daily total of your accounts payable transactions. You cannot tell just by looking at the accounts payable ledger how much you paid to a particular vendor. However, you can keep track of each vendor using an accounts payable subsidiary ledger. The subsidiary ledger total is then transferred to the accounts payable ledger.

You create an accounts payable subsidiary ledger by making a separate account for each vendor. If you have outstanding invoices, enter each invoice number and the amount on a separate line. If the vendor offers terms for paying the invoice early, you need to enter the terms to take the discount. When you are finished creating your accounts payable ledger, the total of the subsidiary accounts should match the accounts payable ledger balance. If financial statements are prepared monthly, the balances of control accounts of the general ledger are ascertained at the end of the month. In the subsidiary ledger, postings are given daily in the individual subsidiary ledger accounts, and balances are ascertained daily.

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An analysis of your accounts receivables may reveal that your customers are taking longer to pay than usual. Supplier personal accounts, sometimes referred to as the accounts payable subsidiary ledger, and used to record amounts owed to suppliers for account purchases. 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. At the end of an accounting period, the balance of every control accounts of general ledger becomes equal to the total of balances of individual accounts of the related subsidiary ledger. The control account gives the overall picture, but a subsidiary account gives the details.

These payables are short-term debts or IOUs from one company to another company. The total amount of payables owed to suppliers is recorded as accounts payable on the general ledger. 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. Since companies are integrating accounting records with their other information into one database, I assume there will be less use of the term subsidiary ledgers in the future. There will likely be reports generated to provide the information formerly contained in the subsidiary ledger.

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The schedule of accounts receivable for the customers in our example is shown next. The total should be equal to the balance stated in the related general ledger account. For example, the general ledger account, Equipment, shows the historical cost of the total equipment owned by the firm. Our general ledger sheet template is available to create a ledger sheet for each account in the double entry bookkeeping system.

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. Another use for a subsidiary ledger is keeping track of inventory used to manufacture products. In this case, inventory is the controlling account, and there may be subsidiary accounts for each type of item, such as nuts, bolts, pounds of steel, microchips, etc. 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.

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You can use the information in your accounts payable subsidiary ledger to create an accounts payable aging report. The aging report shows the name of the vendor and lists the individual overdue invoices. The aging report also shows the outstanding amount for each invoice and how long the invoice has gone unpaid. If the number of late invoices starts to increase, it may point to problems with your accounts receivable collections.

The individual cards serve as a subsidiary ledger to the controlling Equipment account. In order to research accounting information when a subsidiary ledger is used, you need to drill down from the general ledger to the appropriate subsidiary ledger, where the detailed information is stored. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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. A subsidiary ledger is an addition of a general ledger used to record each account’s receivables and accounts payable separately. Postings to the subsidiary ledger accounts are indicated by noting the customer’s account number in the Ref. column. Subsidiary ledgers can be created for any general ledger account, but they are generally most useful for instances of high transaction volume such as accounts payable, accounts receivable, inventory, or fixed assets. 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. The private ledger contains accounts relating to the management and ownership of the business, including the personal accounts of owners.

• In other words, the subsidiary ledger contains the individual payables owed to each of the suppliers and vendors, as well as the amounts owed.
• Record the following transactions for Store Inc. in the special journals and post to the general ledger provided.
• The subsidiary ledger is a chart of specific accounts that are not included in the general ledger.
• Real accounts are balance sheet accounts and are therefore permanent accounts.
• This way all vendor balances are located in one spot and can be analyzed individually or as a group.

For example, assume that you started a tutoring business and began charging five of your classmates an hourly rate for your services to help them with their math homework. To make it easier for your customers, you keep track of your hours and bill them for the hours tutored at the end of each week. You allow them one week to pay, so they can take care of the balance when they receive their allowance and/or paycheck. Postings to the general ledger accounts are likewise indicated by noting the general ledger accounts in the Ref. column. Similar backup information is often necessary for items such as prepaid insurance and plant and equipment. All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only.