What are Subsidiary Ledgers?
When a business has only a small number of accounting transactions and accounting staff then the double entry bookkeeping postings can all be maintained in a single ledger known as the general ledger.
The general ledger is the main accounting ledger containing a record of all transactions. As the business expands the general ledger is divided into subsidiary ledgers to allow for the larger volume of transactions and to allow access to the ledgers by the increased number of staff.
The impersonal ledger records transactions relating to income, expenses, assets, liabilities and capital. The impersonal ledger is sub-divided as follows.
The real ledger contains accounts relating to assets and liabilities. It should be noted that although accounts receivable and accounts payable are real accounts they are also personal accounts and therefore held in the personal ledger.
Real accounts are balance sheet accounts and are therefore permanent accounts.
Cash is also an asset account in the real ledger but due to the level of detail required in the cash account it is normal for a business to maintain a separate subsidiary ledger known as the cash book.
The nominal ledger contains accounts relating to revenue and expenses. Nominal accounts are primarily income statement accounts and are therefore temporary accounts.
The private ledger contains accounts relating to the management and ownership of the business, including the personal accounts of owners. As the name implies it is used to maintain the privacy of the individuals involved.
The personal ledger records transactions relating to persons such as a customer or a supplier. It should be noted that the personal ledger is not used for the capital and current accounts of the owners, these are maintained in the private ledger referred to above.
Accounts Receivable Ledger or Sales Ledger
Customer personal accounts, sometimes referred to as the accounts receivable subsidiary ledger, and used to record amounts outstanding from customers for on account sales.
Accounts Payable ledger or Purchase Ledger
Supplier personal accounts, sometimes referred to as the accounts payable subsidiary ledger, and used to record amounts owed to suppliers for account purchases.
Our general ledger sheet template is available to create a ledger sheet for each account in the double entry bookkeeping system.
Subsidiary Ledgers and Double Entry Bookkeeping
The general ledger will normally contain a control account for each subsidiary ledger, e.g. sales ledger, purchase ledger, cash book etc.
If a business uses control accounts, there are two options with subsidiary ledgers, either the subsidiary ledger itself forms part of the double entry bookkeeping system and the control account is for information only, or the control account forms part of the double entry system, and the subsidiary ledger is for information and analysis purposes only. Either is acceptable.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.