Week 10

 You can have separate accounts receivable accounts with only a handful of customers but what if the business had 500 credit customers?  You can have separate accounts payable accounts with only a handful of vendors but what if the business dealt with numerous different vendors?  Having numerous individual accounts receivable and accounts payable accounts in the general ledger would be difficult to manage.

 Subsidiary: secondary, controlled by another  The Accounts Receivable and Accounts Payable accounts in the general ledger are the controlling accounts for their respective subsidiary ledgers.  The general ledger accounts summarize or controls the information in the subsidiary ledgers.  After posting is complete the total of all of the individual balances in each subsidiary ledger will equal the ending balance of the related controlling account in the general ledger.

 Instead of having numerous accounts payable accounts in the general ledger a business that deals with numerous vendors will set up special ledger known as a subsidiary ledger.  The Accounts Payable Subsidiary Ledger contains an account form for each individual vendor.  The A/P Subsidiary Ledger contains an alphabetical record of each vendor and the balance owed the vendor.

Each vendor has their own form. The transaction data comes from the different journals used by the business. Jan 8, from the purchases journal, an amount the business now owes ABC Company. Then, on Feb 15, a payment made to ABC Company as posted from the cash payment journal. Notice the Credit Balance heading. Since this subsidiary ledger represent the amount the business OWES, the accounts payable liability will have a normal credit balance.

Now you see why we identify the vendor. The POST REF is the vendor number from the A/P Subsidiary Ledger.

In this transaction the debit will be posted to Accounts Payable (account number 201) in the general ledger AND will be recorded to Smith’s Merchandise (vendor number 125) in the A/P Subsidiary Ledger. Now you know why that diagonal line is entered so both POST REF numbers can be added.

 Prepared after all journal entries are posted.  A listing of vendor accounts, account balances and the total amount due all vendors.  The total of the schedule should match the balance in the controlling account, accounts payable.

 Instead of having numerous accounts receivable accounts in the general ledger a business that deals with numerous customers will set up special ledger known as a subsidiary ledger.  The Accounts Receivable Subsidiary Ledger contains an account form for each individual customer.  The A/R Subsidiary Ledger contains an alphabetical record of each customer and the balance owed to the business by the customer.

Each customer has their own form. The transaction data comes from the different journals used by the business. Feb 20, from the sales journal, an amount the customer, Paul Miller, now owes the business. Then, on Apr 4, a payment made to the business by Paul Miller as posted from the cash receipts journal. Notice the Debit Balance heading. Since this subsidiary ledger represent the amount customers owe the business, the accounts receivable asset will have a normal debit balance.

Now you see why we identify the customer. The POST REF is the customer number from the A/R Subsidiary Ledger.

In this transaction the credit will be posted to Accounts Receivable (account number 115 in the general ledger AND will be recorded to Paul Miller(customer number 155) in the A/R Subsidiary Ledger. Now you know why that diagonal line is entered so both POST REF numbers can be added.

 Prepared after all journal entries are posted.  A listing of customer accounts, account balances and the total amount due from all customers.  The total of the schedule should match the balance in the controlling account, accounts receivable.

 Being able to post special amount column totals save times and is more accurate than posting all of the individual amounts.  The column heading for the special amount column identifies the account and whether the column total is a debit or credit.