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Accounting Practices 501
Chapter 5
Subsidiary ledgers
Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011
Let’s start by looking at the Accounts Receivable account in the
General Ledger
Accounts receivable subsidiary ledger
Ch5A - Intro to subs ledgers
So far, we have only looked at Accounts Receivable in the General Ledger as one summarised amount
Date
General Ledger
Details Ref no Debit Credit BalanceACCOUNTS RECEIVABLE (acct nr 1200)
30 Sales 20,000 20,000 Dr
8,000 12,000
DrBank30
SJ1
This account is actually called the Accounts Receivable Control account
Ch5A - Intro to subs ledgers
Date
General Ledger
Details Ref no Debit Credit BalanceACCOUNTS RECEIVABLE CONTROL (acct nr
1200)30 Sales 20,000 20,000 Dr
8,000 12,000
DrBank30
SJ1
But, these amounts are made up of many different individual customers’ amounts
Ch5A - Intro to subs ledgers
Date
General Ledger
Details Ref no Debit Credit Balance
30 Sales 20,000 20,000 Dr
8,000 12,000
DrBank30
SJ1
Sales : T Woods $5,000Sales : M Campbell $3,000Sales : E Els $8,000
Sales : V J Singh $4,000
Receipts : T Woods $3,000Receipts : E Els $5,000
ACCOUNTS RECEIVABLE CONTROL (acct nr 1200)
Accounts Receivable Subsidiary Ledger
Ch5A - Intro to subs ledgers
The business could have thousands of credit customers
So, what to do?
Can you imagine how very cluttered the General Ledger would be if we put each customer's account in our main ledger?
Mmm…
General Ledger
Ch5A - Intro to subs ledgers
1-1000 Current Asset1-1100 Bank
$20,0001-1200 Accounts Receivable
1-1201 T Woods $2,000 1-1202 M Campbell $3,000
1-1203 E Els $3,0001-1204 V J Singh $4,0001-1205 N Faldo
$4,0001-1206 G Norman $8,0001-1207 G Player $1,0001-1208 R Goosen $7,000……..
1-1300 InventoryDo you see the problem? It’s cluttered and very bulky and not easy to use.
General Ledger
Ch5A - Intro to subs ledgers
1-1000 Current Asset1-1100 Bank
$20,0001-1200 Accounts Receivable
1-1201 T Woods $2,000 1-1202 M Campbell $3,000
1-1203 E Els $3,0001-1204 V J Singh $4,0001-1205 N Faldo
$4,0001-1206 G Norman $8,0001-1207 G Player $1,0001-1208 R Goosen $7,000……..
1-1300 Inventory Let’s get rid of the bulk and move it somewhere else
Ch5A - Intro to subs ledgers
1-1000 Current Asset1-1100 Bank $20,0001-1200 Accounts Receivable
1-1300 Inventory
We move it out to a subsidiary ledger, where it is easier to maintain each customer’s account
T Woods $2,000M Campbell $3,000E Els $3,000V J Singh $4,000N Faldo $4,000G Norman $8,000G Player $1,000R Goosen $7,000……..……..
TOTAL $50,000
$50,000
Accounts Receivable Subsidiary Ledger
General Ledger
Ch5A - Intro to subs ledgers
1-1000 Current Asset1-1100 Bank $20,0001-1200 Accounts Receivable1-1300 Inventory
Our General Ledger is now streamlined once more
T Woods $2,000M Campbell $3,000E Els $3,000V J Singh $4,000N Faldo $4,000G Norman $8,000G Player $1,000R Goosen $7,000……..……..
TOTAL $50,000
$50,000
Accounts Receivable Subsidiary Ledger
Wow, that makes sense!!
General Ledger
Ch5A - Intro to subs ledgers
1-1000 Current Asset1-1100 Bank $20,0001-1200 Accounts Receivable1-1300 Inventory
T Woods $2,000M Campbell $3,000E Els $3,000V J Singh $4,000N Faldo $4,000G Norman $8,000G Player $1,000R Goosen $7,000……..……..
TOTAL $50,000
$50,000
Accounts Receivable Subsidiary Ledger
General Ledger
Subsidiary ledgers are also a form of internal control, as the total of the subsidiary ledger has to balance with the control account in the General Ledger
Ch5A - Intro to subs ledgers
Exactly the same applies to the Accounts Payable Subsidiary
Ledger
Ch5A - Intro to subs ledgers
What have we done so far and where are we
heading?
?
Ch5A - Intro to subs ledgers
Financial transactions
Evidenced by source documents
Journals
General &Subsidiary Ledgers
Chart of accounts used as index to Gen Ledger
Trial balance
Financial Statements
Summarisation of like transactions
