MODULE 2 – SUBSIDIARY LEDGERS
SUBSIDIARY LEDGER
A collection of detailed individual accounts that support a single, summary account in the
general ledger, known as a control account.
It provides granular detail for a group of similar transactions, such as individual customer
balances for accounts receivable or individual supplier balances for accounts payable.
HOW DOES A SUBSIDIARY LEDGER WORKS
Detailed breakdown
Instead of listing every single customer or supplier in the main general ledger, the
general ledger only shows a total for Accounts Receivable or Accounts Payable.
Individual accounts
A separate subsidiary ledger is created to list each individual customer and the specific
amount they owe.
Control account
The sum of all individual balances in the subsidiary leger must match the balance its
corresponding control account in the general ledger.
Verification
This allows companies to verify the accuracy of their financial records and quickly
pinpoint discrepancies.
PRIMARY PURPOSE OF A SUBSIDIARY LEDGER
The purpose of a subsidiary ledger is to provide a more thorough transaction
breakdown, such as individual customers' balances or inventory levels, without cluttering
the general ledger with excessive detail.
COMMON TYPES OF SUBSIDIARY LEDGERS
Accounts Receivable Subsidiary Ledger
Accounts Payable Subsidiary Ledger
Sales Subsidiary Ledger
Inventory Subsidiary Ledger
BENEFITS OF USING SUBSIDIARY LEDGERS
Increased Accuracy
Help detect errors by comparing the detailed subsidiary records to the summary control
account.
Detailed Information
They provide a comprehensive view of individual transactions which is vital for customer
service and supplier management.
Improved Efficiency
By summarizing may transactions into a single general ledger account, subsidiary ledgers
reduce the overall size and complexity of the general ledger.
SPECIAL JOURNALSThe use of Special Journals and subsidiary ledgers permits greater division of labor
because several individuals can record entries in different journals at the same time.
The use of Special Journals reduces the time necessary to complete the posting process.
Special Journals would be needed only for the types of transactions that occur frequently like
receipt and disbursement of cash and the purchase and sale of merchandise.
SUBSIDIARY LEDGERS AND CONTROL ACCOUNTS
When there are substantial number of individual account with common characteristics, it is
customary to place them in a separate ledger called Subsidiary Ledgers.
It is a group of accounts with common characteristics.
It frees the General Ledger from the details balances.
It is an addition to, and an expansion of the general ledger.
Two common subsidiary ledgers are:
Accounts Receivable ledger which accumulates transaction data with individual
customers
Accounts Payable ledger which maintains transaction data with individual creditors
RELATIONSHIP OF SUBSIDIARY LEDGERS TO THE GENERAL LEDGER
GENERAL ACCOUNTS ACCOUNTS
LEDGER CASH
RECEIVABLE PAYABLE
CUSTOMER A CREDITOR X
CUSTOMER B CREDITOR Y
CUSTOMER C CREDITOR Z
Special journals are accounting records that group and record frequently occurring,
similar transactions to improve efficiency and reduce the need for manual entry into a
general journal. Common examples include:
Sales journal – for credit sales
Purchase journal – for credit purchases
Cash Receipts journal – for all cash inflows
Cash payments journal – for all cash outflows
General Journal
Purchase Sales Cash Cash General
Journal Journal Receipt Disbursement Journal
Journal Journal
Use to record Use to record Use to record Use to record all Use to record
all purchases all sales of all cash cash paid including transactions that
merchandise on merchandise received cash purchases. cannot be recorded
account. on account including in the special
cash sales. journal, including
adjusting and
closing entries.
ADVANTAGES OF USING SPECIAL JOURNALS
1. Posting to the general ledger accounts becomes less detailed. The tabular arrangements of
special journals often permits all entries to a given account to be added and posted as a single
aggregate posting.
2. Using special journals save time and effort in journalizing and posting.
3. Special journals are designed to systematize the original recording of the major recurring
transactions.
4. By using special journals, responsibility can be fixed, thus attaining greater degree of internal
control
PURCHASE JOURNALS (COLUMNAR HEADINGS)
INPUT ACCOUNTS
DATE PURCHASED TERMS INVOICE POSTING PURCHASES TAX PAYABLE
FROM # REF (PR) (DEBIT) (DEBIT) (CREDIT)
EXERCISE #1: SAMPLE TRANSACTIONS ( ALL AMOUNTS ARE INCLUSIVE OF 12% VAT)
TO BE POSTED
IN THE GENERAL LEDGER
Oct 1 - purchased merchandise from 3 Sisters Inc, P22,400 terms 2/10, n/30.
2 - purchased merchandise from U Store P13,400, terms n/30.
3 - purchased goods from National Company, P8,960 on account 2% EOM.
4 - purchased merchandise on account from Atlas Company 2/10, n/30, P16,800.
SALES JOURNALS (COLUMNAR HEADINGS)
OUTPUT ACCOUNTS
DATE SOLD TO TERMS INVOICE # POSTING SALES TAX RECEIVABL
REF (PR) (CREDIT (CREDIT) E (DEBITT)
EXERCISE #2: SAMPLE TRANSACTIONS ( ALL AMOUNTS ARE INCLUSIVE OF 12% VAT)
TO BE POSTED
IN THE GENERAL LEDGER
Oct 6 - sold merchandise to SM Company, 2/10, n/30, P16,800.
7 - sold goods to Rustan’s Supermarket, P22,400, terms n/30.
8 - sold merchandise to Gotesco, P11,200, terms 2/10, n/30.
9 - sold goods to Ever Emporium, P7,840, terms n/30.
CASH RECEIPT JOURNALS (COLUMNAR HEADINGS)
SALES SUNDRIE
RECEIVED OR CASH SALES A/R DISCOUNT S ACCT
DATE FROM No. ( Debi (Credit) (Credit) (Debit) TITLE PR DEBIT CREDIT
t)
EXERCISE 3 : SAMPLE TRANSACTIONS
Oct 11 - cash sales for the day, P25,000.
12 - received additional cash investment from Mr. HAW for P100,000.
13 - received P500,000 as loan from PNB.
14 - received full payment from Gotesco P10,000 less 2%. Date of sale October 8, sales
invoice No. 003.
15 - sold a piece of old office equipment for cash, P5,000.
16 - cash sales for the day, P30,000