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What are Subsidiary Accounts?

Malcolm Tatum
By
Updated May 16, 2024
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Subsidiary accounts are accounts that are associated with what is known as a subsidiary ledger. These accounts generally represent individual customer accounts and are used to record all the transactions associated with each of those customers. When managed properly, the sum total of the consolidation of subsidiary accounts tracked in the accounting records will balance perfectly with the balance in the control account of the general ledger.

The function of subsidiary accounts is important to just about any type of business that provides terms of payment to its client base. For example, a utility company provides services that are billed on a monthly basis. The customer or subscriber then has a specific period of time in which to pay that monthly bill without the assessment of late fees or charges.

In order to track the usage and the payment activity of each utility customer, the business will establish a subsidiary account for that customer in the accounting records. Each of the subsidiary accounts carry complete information on all customers, including the account number assigned to each individual customer. As the bill for each customer is issued, that invoiced amount is entered into the account along with the invoice number and the issue date. Once a payment for that invoice is remitted, it is posted to the account, reducing the outstanding balance due.

The collective activity in the subsidiary accounts is also mirrored in the control account that is maintained as part of the general ledger. When invoices are issued, those are accounted for in not only the subsidiary accounts but also in the Accounts Payable area of the ledger. As customers remit payments, those are accounted for in the Accounts Receivable area of the ledger as well as in the customer’s own subsidiary account. Assuming that all the necessary postings are made in a timely manner. This approach helps to keep the accounting books balanced at all times while still making it easy to retrieve account information and history on each customer.

Thanks to the use of accounting software, the process of posting to the control account in the general ledger while also posting to the customer subsidiary accounts is much easier than in times past. Often, the accounting software is configured to allow for the entry of the data on one screen. From there, the software records the post in both the control account and in the individual customer’s subsidiary account simultaneously. This approach can help eliminate issues such as posting to the customer account but forgetting to post in the control account of the general ledger, or vice versa.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
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Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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