Why are subsidiary ledgers important

Each entry is recorded in respective subsidiary ledger as well as the respective main ledger which is also called the control account. During the period following transactions were undertaken:. Note that the sum of opening and closing balances of subsidiary ledgers is equal to opening and closing balance of Accounts Payable ledger respectively as each transaction has been posted in both main ledger and respective subsidiary ledgers.

Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Key Takeaways An accounts payable subsidiary ledger is an accounting ledger that shows the transaction history and amounts owed to each supplier and vendor.

An accounts payable AP is essentially an extension of credit from a supplier that gives a business the buyer time to pay for the supplies. The subsidiary ledger records all of the accounts payables that a company owes whereby the aggregate total is carried over to the general ledger. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms Accounts Payable AP "Accounts payable" AP refers to an account within the general ledger representing a company's obligation to pay off a short-term debt to its creditors or suppliers.

It provides details on these sales by showing invoice dates and numbers, credit memorandums, payments made against the credit sales, discounts, and returns and allowances.

The sum of all invoices in the accounts receivable subsidiary ledger should equal that of the accounts receivables on the general ledger, also known as the control account. The usefulness of the accounts receivable subsidiary ledger lies in the fact that it can show, at a glance, the account status and amounts owed by a specific customer.

This information can be gleaned from the accounts receivable subsidiary ledger. Without this subsidiary ledger, a company with many customers would have difficulty tracking customer payments and transactions.

Like other subsidiary ledgers, the accounts receivable subsidiary ledger merely provides details of the control account in the general ledger. Other subsidiary ledgers include the accounts payable subsidiary ledger , inventory subsidiary ledger, and property, plant, and equipment subsidiary 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.

The accounts receivable subsidiary ledger can provide insight into customer demographics by profitability, prevent internal fraud, monitor past-due obligations, organize different aspects of revenues, and avoid customer overpayments. The general ledger is not able to provide this much detail and so having an accounts receivable subsidiary ledger, or any other subsidiary ledger for that matter, is a real benefit to a company's operations.

It can greatly assist in making helpful adjustments to a company's business model in providing the insight needed to achieve higher revenues and targeted business expansion. It can also help with managing current assets and current liabilities. Company Profiles. Looking for a different set of features or lower price point? Check out these alternative options for popular software solutions. Our comprehensive guides serve as an introduction to basic concepts that you can incorporate into your larger business strategy.

We've tested, evaluated and curated the best software solutions for your specific business needs. Learn how real businesses are staying relevant and profitable and are even growing in a world that faces new challenges every day. Trying to decide between two popular software options? See how your choices perform when evaluated side-by-side. Our experts take you through step-by-step processes, providing tips and tricks to help you avoid common pitfalls along the way.

Learn how the latest news and information from around the world can impact you and your business. Unbiased, expert reviews on the best software and banking products for your business. Short on time, high on curiosity? Get clear, concise answers to common business and software questions.

Not sure how to use a particular tool in your software solution? Learn how using our software-specific feature walk-throughs and how tos. Looking for the best tips, tricks, and guides to help you accelerate your business? Use our research library below to get actionable, first-hand advice. Subledgers are part of your general ledger and provide detail on specific high-activity accounts. We may receive compensation from partners and advertisers whose products appear here.

Compensation may impact where products are placed on our site, but editorial opinions, scores, and reviews are independent from, and never influenced by, any advertiser or partner. A subledger or subsidiary ledger provides the details that make up the balance of specific general ledger accounts.

Because general ledger accounts only provide an ending balance for each particular account, a subsidiary ledger is used to provide the details that result in that general ledger balance. Only high-activity accounts in your general ledger will use a subledger. The same issue can also impact your accounts receivable balance. They provide the details for high-activity general ledger accounts, making it easy to pay your bills and collect balances from customers.

Subsidiary ledger accounts are commonplace for general ledger master accounts such as cash, accounts payable, accounts receivable, and sales. Subledger examples include the following:.

If your business is very small, and you only have one or two vendors or customers, you can easily track your balances in your general ledger. Only subledger accounting will do that.

Accounting software will render the subledger vs. Though designed to function together, there are quite a few differences between a general ledger and a subledger. The following are some of the more important ones. Your general ledger serves as your chart of accounts, while your subledger is the information that feeds into your general ledger but does not have its own chart of accounts. In other words, the general ledger can function just fine without subledgers, but a subledger requires a general ledger to function properly.

Your general ledger account contains only one specific account for each category, while a subledger can have an unlimited number of account transactions. For example, your general ledger has only one accounts payable account, whereas your subledger can have an unlimited number of sub-account transactions that make up the total of your accounts payable account. Your general ledger is designed to provide the balance of each of the accounts in your chart of accounts, while the subledger is designed to provide you with the details that make up that particular account.