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7 4 Prepare a Subsidiary Ledger Principles of Accounting, Volume 1: Financial Accounting

These are called subsidiary accounts and are placed in a subsidiary accounts receivable ledger. Rather than having multiple related accounts clogging up the main ledger system, a single subsidiary ledger can sum and report the totals of all related accounts with a single entry. Other steps done automatically by the computer are preparing a trial balance, closing entries, and generating financial statements.

  1. Inventory Sub-Ledger is used to manage the inventory/stock or items that a company buys, sell,s, or manufacture.
  2. When we say the computer can do a specific step “automatically,” this presumes that a programmer wrote the programs (i.e., detailed step-by-step instructions in a computer language) that tell the computer how to do the task.
  3. It is much easier to review data when it is organized and grouped together.

Each individual account in the subsidiary accounts receivable ledger should show the customer’s name, address, credit rating, and credit limit, along with any other vital payment information. Total and rule (draw a line under the column of numbers) the journals. The four main special journals are sales journal, purchases journal, cash receipts journal, and cash disbursements journal.

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It helps prepare financial statements like trial balances, balance sheets, etc. The four sections in a general ledger are financial transactions, accounting periods, a chart of accounts, and account balances. The balance of accounts receivable $4,000 of the general ledger is equal to the total balance $4,000 of individual ledger accounts of the subsidiary ledger. As for example, detailed data of accounts receivable subsidiary ledger are transferred to accounts receivable briefly in general ledger.

Best practices to follow when using general ledger

The user would have to provide the computer with information about adjusting entries at the end of the period. Some adjusting entries can be set up to be done automatically every month, but not all. When we say the computer can do a specific step “automatically,” this presumes that a programmer wrote the programs (i.e., detailed step-by-step instructions in a computer language) that tell the computer how to do the task. The computer can then follow those instructions and do it “automatically” without human intervention. Note that each account used by the company has its own account section in the general ledger. First, enter these transactions manually by creating the relevant journals and subsidiary ledgers.

For instance, one person can be in charge of the accounts receivable listings and another person can be in charge of the accounts payable listings. Companies maintain a list of invoices due from their customers, normally in the form of an accounts receivable aging register. This provides them with a listing of all the outstanding and unpaid invoices due to their customers. It also lets them know how old the invoices are, so they are aware of any past due items. By maintaining these subledgers, businesses can access more granular and specific financial information, enabling enhanced control, analysis, and comprehensive reporting of their financial data.

The subsidiary ledger is also commonly referred to as the subledger or subaccount. When the financial statements are prepared, the accounts payable total is listed with other short-term financial obligations under the current liabilities section of the balance sheet. The accounts payable subsidiary ledger is a breakdown of the total amount of payables listed on the general ledger. In other words, the subsidiary ledger contains the individual payables owed to each of the suppliers and vendors, as well as the amounts owed. Record the following transactions for Store Inc. in the special journals and post to the general ledger provided. Use the perpetual inventory method and the gross method of dealing with sales terms.

Don’t forget to close your entries after reconciliation

Important subledgers can often become their own ecosystem, forming an important foundation to a business’s general ledger as well as larger financial reports. The accounts payable process or function is immensely important since it involves nearly all of a company’s payments outside of payroll. The accounts payable process might be carried out by an accounts payable department in a large corporation, by a small staff in a medium-sized company, or by a bookkeeper or perhaps the owner in a small business.

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The Work in Process account will now be a control account containing summary amounts for direct materials, direct labor, factory overhead applied, transfers to finished goods, etc. Manufacturing personnel will have full access to the job cost sheets without having access to other information in the general ledger. Though keeping an accounts receivable subsidiary ledger in addition to a general ledger requires more work and documentation, it is typically worth the extra effort. The analysis that can go into the detail provided by the accounts receivable subsidiary ledger helps organize a company and allows it to perform in a more targeted manner. A ledger is a book that contains the summarized information (that is in the journal) of different accounts.

So the account that is against the Cash account is the Owner’s Equity account. Maintaining payroll subsidiary ledger also facilitates capturing other employees related information like earnings detail, contribution detail, deduction detail, payments and check detail, and timecard detail. Projects Sub-Ledger is used to track project milestones, costs, and resources and to make billing to the customers.

Problem Set A

This section will look at the transactions for Fooz Ball Town and how to post to subsidiary ledgers for accounts receivable and accounts payable. This sub ledger lists contains all of the account details for every credit customers including dates, balances, payments, and purchases subsidiary ledger examples made by each customer. Even a small company can have hundreds of customers who purchase goods on credit. If each customer account was reported in the general ledger, there would be several hundred accounts receivable accounts to sift through when analyzing the main ledger.

Inventory Ledger is also used to manage and track item cost and issue prices and movements of stock items due to trading transactions. It is also known as “Stock Sub-Ledger” and sometimes referred to as “Material Ledger”. Accounts Payable Subsidiary Ledger is used to manage invoices from suppliers and payments to them against the purchases made. Main transactions are recording of invoices for purchases & managing the payments for these invoices. It is also known as Suppliers Subsidiary Ledger or Creditors Subsidiary Ledger.

Record the following transactions using a purchases journal, a general journal, and an accounts payable subsidiary ledger. The purpose of keeping subsidiary ledgers is for accuracy and efficiency. Since the total of the accounts receivable subsidiary ledger must agree with the balance shown in the accounts receivable general ledger account, the system helps us find mistakes. Since bookkeeping using ledgers is older than the United States, it was an ingenious way to double-check without having to actually do everything twice. Today, computerized accounting information systems use the same method to store and total amounts, but it takes a lot less time.

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