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. As the business expands subsidiary ledgers are used to allow for the larger volume of transactions and to allow access to the ledgers by the increased number of staff.
Subsidiary ledgers are created by sub-dividing the ledger by accounting function. The ledger is usually first divided into the personal and impersonal subsidiary ledgers which are then further sub-divided as follows:
The personal ledgers record transactions relating to persons such as a customer or a supplier.
- 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.
The impersonal ledgers record transactions relating to income, expenses, assets and liabilities.
- Cash Book – Cash payments and receipts. It should be noted that cash book transactions are recorded from accounting source documents and it is therefore a book of prime entry and classified as both a journal and a subsidiary ledger.
- General Ledger – Revenue, expenditure, asset, and liability accounts. In larger organizations the general ledger is further divided into the nominal ledger for income and expenses, and the private ledger for assets and liabilities.
The sub-division of the ledger into subsidiary ledgers is summarized in the diagram below.
Subsidiary Ledgers and Double Entry Bookkeeping
The general ledger will normally contain a control account for each subsidiary ledger.
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.