What is the Subsidiary Ledger?
A subsidiary ledger is used in accounting to keep track of details related to a general ledger account. It is generally an account or a group of related accounts that correspond to individual line items in a general ledger. The subsidiary ledger allows a company to note details such as a customer's payments or purchase history without cluttering the general ledger. Without subsidiary ledgers, the general ledger would have to include so much information that it would be impossible to use.
A general ledger account is the main record for a business. Accounts for assets, liabilities, and revenue can all be general ledger accounts. In a practical sense, a general ledger is like a summary; it gives totals but not the details of where that money comes from or how it can be broken down into individual components. Any general ledger that summarizes a subsidiary ledger account is called a control account or master account.
The control account gives the overall picture, but a subsidiary account gives the details. The subsidiary accounts are not part of the general ledger. Instead, they allow companies to monitor individual components of the control account. For example, the control account might list an income of $5,000. That $5,000 might have included several checks from several different customers. The subsidiary ledger would have an individual account for each customer to keep track of how much each individual customer paid and what they were paying for.
A company will have only one general ledger for each type of account, but it can have as many subsidiary ledgers as it needs to keep track of details. Some companies may have hundreds or even thousands of subsidiary accounts depending on their customer base, how many creditors they have, and other details. The total of the subsidiary ledger is equal to the total balance on the general ledger account or to the total balance of the group of subsidiary ledgers related to it.
In addition to keeping companies organized, subsidiary ledgers can also help control the flow of information. Customer service personnel can have access to a specific subsidiary ledger or group of ledgers in order to see customer purchase histories and buying patterns without having access to all of the companies financial information. Meanwhile, the company accountants can do their day-to-day work in the general ledger without having to wade through the details of the subsidiary ledgers.
Very useful. Explains the key terms in a easy to understand format.
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