What is the purpose of an accounts receivable subsidiary ledger?

A standard accounting system typically uses a series of ledgers and journals to retain various pieces of information that relate to business transactions. An accounts receivable subsidiary ledger is one such accounting book that falls under a control account. Accounts receivable lists all clients who owe the company money for previous purchases. The accounts receivable subsidiary ledger retains specific information for each of these customers. The information in each subsidiary ledger only relates to a single customer and typically holds information for the start of the customer’s relationship with the company.

A control account for the accounts receivable subsidiary ledger is typically the accounts receivable master account. The master account is simply an aggregate total of all outstanding balances in each subsidiary ledger. For example, if a company has 100 customers who owe money, each customer has an accounts receivable listing that indicates the current amount owed by the customer. The master account takes all the individual balances and rolls them into one number that goes onto the company’s balance sheet. Less information is in the master control account in the accounting books than is in the subsidiary ledger.

The accounts receivable subsidiary ledger may be specific to each company in the business environment. There is really no specific set of information that must have inclusion in the subsidiary ledger unless certain national accounting standards exist for this accounting practice. Companies can build them around information that best suits the needs of those reviewing this data. In some cases, certain information may be necessary in the accounts receivable subsidiary ledger as requested by a public accounting firm. Public accounting firms tend to provide guidance for setting up subsidiary ledgers, so each company is within certain compliance laws in the business environment.

Another closely related subsidiary ledger to the accounts receivable subsidiary ledger is the allowance for doubtful accounts. This account shows all individuals who are late paying their original open accounts receivable balances. This secondary subsidiary ledger lowers the asset balance of the accounts receivable master account. Depending on a company’s accounting policies, the balance sheet may only show the difference between the master accounts receivable account and the allowance for doubtful accounts total. A disclosure may be necessary to inform stakeholders about the amount of money a company will not expect to receive from previous sales; this amount results in lost cash for business expenses.

A subsidiary ledger stores the details for a general ledger control account. Once information has been recorded in a subsidiary ledger, it is periodically summarized and posted to a control account in the general ledger, which in turn is used to construct the financial statements of a company. Most accounts in the general ledger are not control accounts; instead, individual transactions are recorded directly into them. Subsidiary ledgers are used when there is a large amount of transaction information that would clutter up the general ledger. This situation typically arises in companies with significant sales volume. Thus, there is no need for a subsidiary ledger in a small company.

Types of Subsidiary Ledgers

A subsidiary ledger can be set up for virtually any general ledger account.  However, they are usually only created for areas in which there are high transaction volumes, which limits their use to a few areas. Examples of subsidiary ledgers are the accounts payable ledger, accounts receivable ledger, fixed assets ledger, inventory ledger, and purchases ledger.

As an example of the information in a subsidiary ledger, the inventory ledger may contain transactions about receipts into stock, movements of stock to the production floor, conversion into finished goods, scrap and rework reporting, write-offs for obsolete inventory, and sales to customers.

Posting from Subsidiary Ledgers

Part of the period-end closing process is to post the information in a subsidiary ledger to the general ledger. Posting is usually a manual processing step, so you need to verify that all subsidiary ledgers have been appropriately completed and closed before posting their summarized totals to the general ledger. Otherwise, some late transactions may not be posted into the general ledger until the next reporting period.

Researching with Subsidiary Ledgers

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.

Subsidiary Ledger Controls

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.

What information would be included in a subsidiary ledger for a company's fixed asset account?

Which of the following is the basic purpose of subsidiary ledger?

How is a subsidiary ledger different from accounts receivable ledger?

Why is it necessary to have an accounts receivable ledger?