Post to Subsidiary Ledgers

Post to subsidiary ledgers

Contents

Key to resources

Introduction

The purpose of subsidiary ledgers

Operating a subsidiary ledger system

Summary

This learning guide is based on the following resource:
Textbook
Duncan A (2006) Introductory Accounting, National Core Accounting Publications, Bondi

Key to resources

Resource / Textbook
1 / Chapter 6 Subsidiary ledgers
2 / Chapter 6:

self-testing exercises 1, 2, 3, 4 and 5
end of chapter exercises, questions 1, 2, 6 and 12

Introduction

Initially our ledger postings for all transactions would be to a single-ledger system. A single-ledger system is referred to as the general ledger. We will now introduce the use of subsidiary ledger systems for:

accounts receivable (credit customers or debtors)
accounts payable (suppliers or creditors).

Note: As you progress in your studies in accounting you will deal with other subsidiary ledger systems, such as theassets register and cost ledger.

The purpose of subsidiary ledgers

One problem with the use of a single-ledger system is that the number of individual credit customers (accounts receivable) and suppliers (accounts payable) could be quite large and the size of the general ledger could become cumbersome.

The use of a separate ledger for accounts receivable and a separate ledger for accounts payable would alleviate this problem. It will also considerably reduce the number of accounts listed in the trial balance, which will then only contain the accounts and balances to be taken to prepare the income statement and balance sheet.

The further advantage is that the responsibility for accounts can be divided, with separate accounting staff being responsible for each of the ledgers. As most of the accounting relating to accounts receivable and accounts payable is fairly routine, this responsibility can be given to less qualified staff with the general ledger being the responsibility of a more senior and qualified staff member.

The beneficial operation of separate subsidiary ledger systems for accounts receivable and accounts payable will be better appreciated when considered together with the use of the transaction-specific journals. The use of these journals for credit sales and purchases and for cash receipts and payments will greatly reduce the amount of detail in the control accounts.

We will need to look at:

the use of control accounts as part of the general ledger
separate accounts for credit customers or debtors in a subsidiary accounts receivable ledger
separate accounts for suppliers or creditors in a subsidiary accounts payable ledger
related entries in the general journal and the postings to the ledgers
reconciliation of the accounts receivable ledger account balances with the accounts receivable control account balance in the general ledger
reconciliation of the accounts payable ledger account balances with the accounts payable control account balance in the general ledger
reconciliation of accounts receivable account balances, which is effectively carried out by the customer
reconciliation of accounts payable account balances using statements from the supplier or creditor.

Operating a subsidiary ledger system

The operation of subsidiary ledger systems is such that there is only one account in the general ledger, eg Accounts receivable control account, with separate individual accounts for the various credit customers or debtors of the business in the relevant subsidiary ledger, the accounts receivable ledger. Similarly, fora single account—Accounts payable control account—in the general ledgerthere are separate individual accounts in the accounts payable ledger for the various suppliers or creditors of the business.

/ Now go to Resource 1
/ Now go to Resource 2

Summary

In this learning guide you have looked at the use of subsidiary ledger systems for accounts receivable and accounts payable. Having a separate ledger for these two accounts means that the number of accounts listed in the trial balance is reduced.

Post to subsidiary ledgers1