1. Accounting Practices 501 Chapter 5 Subsidiary ledgers Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011

2. Let’s start by looking at the Accounts Receivable account in the General Ledger Accounts receivable subsidiary ledger

3. Ch5A - Intro to subs ledgers So far, we have only looked at Accounts Receivable in the General Ledger as one summarised amount Date General Ledger Details Ref noDebitCredit Balance ACCOUNTS RECEIVABLE (acct nr 1200) 30Sales20,000 Dr 8,00012,000 Dr Bank30 SJ1 This account is actually called the Accounts Receivable Control account

4. Ch5A - Intro to subs ledgers Date General Ledger Details Ref noDebitCredit Balance ACCOUNTS RECEIVABLE CONTROL (acct nr 1200) 30Sales20,000 Dr 8,00012,000 Dr Bank30 SJ1 But, these amounts are made up of many different individual customers’ amounts

5. Ch5A - Intro to subs ledgers Date General Ledger Details Ref noDebitCredit Balance 30Sales20,000 Dr 8,00012,000 Dr Bank30 SJ1 Sales : T Woods $5,000 Sales : M Campbell $3,000 Sales : E Els $8,000 Sales : V J Singh $4,000 Receipts : T Woods $3,000 Receipts : E Els $5,000 ACCOUNTS RECEIVABLE CONTROL (acct nr 1200)

6. Accounts Receivable Subsidiary Ledger Ch5A - Intro to subs ledgers The business could have thousands of credit customers So, what to do? Can you imagine how very cluttered the General Ledger would be if we put each customer's account in our main ledger? Mmm…

7. General Ledger Ch5A - Intro to subs ledgers 1-1000 Current Asset 1-1100 Bank$20,000 1-1200 Accounts Receivable 1-1201 T Woods$2,000 1-1202 M Campbell$3,000 1-1203 E Els$3,000 1-1204 V J Singh$4,000 1-1205 N Faldo$4,000 1-1206 G Norman$8,000 1-1207 G Player$1,000 1-1208 R Goosen$7,000 …….. 1-1300 Inventory Do you see the problem? It’s cluttered and very bulky and not easy to use.

8. General Ledger Ch5A - Intro to subs ledgers 1-1000 Current Asset 1-1100 Bank$20,000 1-1200 Accounts Receivable 1-1201 T Woods$2,000 1-1202 M Campbell$3,000 1-1203 E Els$3,000 1-1204 V J Singh$4,000 1-1205 N Faldo$4,000 1-1206 G Norman$8,000 1-1207 G Player$1,000 1-1208 R Goosen$7,000 …….. 1-1300 Inventory Let’s get rid of the bulk and move it somewhere else

9. Ch5A - Intro to subs ledgers 1-1000 Current Asset 1-1100 Bank$20,000 1-1200 Accounts Receivable 1-1300 Inventory We move it out to a subsidiary ledger, where it is easier to maintain each customer’s account T Woods$2,000 M Campbell$3,000 E Els$3,000 V J Singh$4,000 N Faldo $4,000 G Norman$8,000 G Player$1,000 R Goosen$7,000 …….. …….. TOTAL$50,000 Accounts Receivable Subsidiary Ledger General Ledger

10. Ch5A - Intro to subs ledgers 1-1000 Current Asset 1-1100 Bank$20,000 1-1200 Accounts Receivable 1-1300 Inventory Our General Ledger is now streamlined once more T Woods$2,000 M Campbell$3,000 E Els$3,000 V J Singh$4,000 N Faldo $4,000 G Norman$8,000 G Player$1,000 R Goosen$7,000 …….. …….. TOTAL$50,000 Accounts Receivable Subsidiary Ledger Wow, that makes sense!! General Ledger

11. Ch5A - Intro to subs ledgers 1-1000 Current Asset 1-1100 Bank$20,000 1-1200 Accounts Receivable 1-1300 Inventory T Woods$2,000 M Campbell$3,000 E Els$3,000 V J Singh$4,000 N Faldo $4,000 G Norman$8,000 G Player$1,000 R Goosen$7,000 …….. …….. TOTAL$50,000 Accounts Receivable Subsidiary Ledger General Ledger Subsidiary ledgers are also a form of internal control, as the total of the subsidiary ledger has to balance with the control account in the General Ledger

12. Ch5A - Intro to subs ledgers Exactly the same applies to the Accounts Payable Subsidiary Ledger

13. Ch5A - Intro to subs ledgers What have we done so far and where are we heading? ?

14. Ch5A - Intro to subs ledgers Financial transactions Evidenced by source documents Journals General & Subsidiary Ledgers Chart of accounts used as index to Gen Ledger Trial balance Financial Statements Summarisation of like transactions