Subsidiary Ledger

Updated on January 3, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Subsidiary Ledger Definition

A subsidiary Ledger is a list of individual accounts that bears a similar nature. It can also be regarded as an expansion of the conventional general ledger that is separately used to record all the transactions related to the accounts payable and accounts receivables in a detailed manner. A summary of all accounts of this nature can be found in the general ledger or the master account of the organization.

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The subsidiary ledger accounting has all the details relating to its nature. For example, an accounts receivable subsidiary ledger provides all the insights into the company’s credit sales such as date, invoice number, discounts, allowances, payments, etc. These details provide much-needed data points because only a summation of these numbers is reflected on the general ledger.

Key Takeaways

  1. A subsidiary ledger is a list of individual accounts. It may also be seen as an enlargement of the traditional general ledger, which is used to meticulously record all transactions about accounts payable and receivables separately.
  2. Accounting firms use the receivable ledger to record all transactional information about specific clients and buyers. Every transaction and the money received from each customer to whom the business extends credit is recorded in this kind of ledger.
  3. Each ledger’s preparation and upkeep are the sole domain of one person. Errors are reduced, and the ledger’s effectiveness is increased.
  4. Subsidiary ledgers do not guarantee the correctness of ledger accounts. Items might be posted to unnecessary accounts, leading to more mistakes in the separate ledgers and ultimately affecting the subsidiary ledger’s overall accuracy.

Subsidiary Ledger Explained

Subsidiary Ledger is a set of individual accounts and is a part of a general accountA General AccountGeneral Account is a deposit account where an insurance company puts all its premiums collected from the policies it underwrites. This is used to fund the company’s operating expenses and the payment of several insurance claims & benefits. read more. It can be used by large-scale businesses or entities with enormous data volume. Small or medium-scale businesses or entities with small transactions may not benefit from the subsidiary ledger.

Subledger eliminates the chances of fraud and errors, and it can be segregated into three types- fixed asset sub-ledger, accounts receivable sub-ledger, and accounts payable sub-ledger. Sub-ledgers are complicated, and it is highly expensive to maintain too. It should be prepared by accounting personnel with the proper knowledge of the accounting framework so that the organization can make the best use of the same.

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Types

Different ledgers account to the specifics of the generalized data from the general ledger or the master account. Let us understand the subsidiary ledger purpose by understanding the different types as discussed below.

Subsidiary Ledger Types

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The three common types/components are enlisted below-

Example

Let us understand the subsidiary ledger accounting through the example below.

ABC ltd sells tires and prepares an account receivable subsidiary ledger for the year ending December 2019. The opening balance for Mr. M Williams and T George on December 1 is $ 150,000 and $ 353,000. On December 5, the company sold goods to M Williams on credit for $ 325,000.

The company received M Williams and T George payments on December 10 and December 18 for $ 225,000 and $ 353,000, respectively. Accordingly, prepare the Accounts Receivable Subsidiary Ledger for ABC Ltd for the year ended on December 31, 2019.

Solution

Below is the Accounts Receivable Subsidiary Ledger for ABC Ltd for the year ended on December 31, 2019 –

Example 1
Example 1.1

Advantages & Disadvantages

Let us understand the different aspects of subsidiary ledger purpose through the discussion of the highs and the lows as perceived by companies and accountants through the points below.

Advantages

The different advantages related to the Subsidiary Ledger are as follows:

Disadvantages

The disadvantages related to the Subsidiary ledger are as follows:

  • Suitable only for Large Scale Organizations– It is ideal for organizations that have large transactions. Large scale businesses or organizations where the volume of transactions are large can only benefit from this ledger. In contrast, the same is not suitable for small and medium-scale organizations or the ones where the volume of transactions is small or fewer in number.
  • Expensive- Another problem with this ledger is that these are highly expensive, and it is also why the same remains less preferred by medium and small-scale organizations.
  • Highly Complicated- It is highly complicated since there is a need to hire many employees and maintain different books for each account. Keeping different accountants and employees gets a little complicated for organizations.
  • Failure to offer Complete Financial Information- As the transactions are not recorded chronologically; therefore, the system fails to provide complete and accurate financial information.
  • A Requirement of Accounting Knowledge- The personnel in charge must be well-versed in accountancy; otherwise, there are huge chances of the transactions getting wrongly recorded, ultimately impacting the overall accounting process.

Subsidiary Ledger vs. General Ledger

Both general ledger and subsidiary ledger accounting are vital in an organization’s overall financial explanation. However, they are often misunderstood for one another due to the similarities at certain levels. Let us understand their differences through the discussion below.

Frequently Asked Questions (FAQs)

What distinguishes the general ledger from the subsidiary ledger?

Financial transactions are recorded using sub-ledger and general ledger accounts. The main distinction between the two is that the sub-ledger is a collection of accounts that is a subset of the general ledger, whereas the general ledger is a collection of master accounts.

Which two sorts of subsidiaries are there?

Wholly-owned and non-wholly-owned subsidiaries are both possible. For example, a normal subsidiary has a parent firm that owns more than 50% of it. On the other hand, the parent owns everything of a wholly-owned subsidiary. In other words, the parent owns all of the common shares of this subsidiary.

Describe contra entrance.

The account is affected when debit and credit have a net zero impact on the same parent account and is reported as a counter entry. These are the exchanges that take place between bank accounts and cash.

Petty cash books: what are they?

Postage, stationery, transportation, refreshments, and other small-ticket items are examples of petty expenses paid using a petty cash book. The petty cashier is the phrase used to describe the person who keeps the petty cash book, and petty expenses are these little outlays of money.

This article has been a guide to what is Subsidiary Ledger. Here we explain its example, compare it with general ledger, and discussed its advantages & disadvantages. You can learn more about accounting from the following articles –

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Comments

  1. Zar Chi Khaing says

    Thank you so much.
    I learn more for this chapter.

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