Definition: A subsidiary ledger is a list of individual accounts that record transactions with common characteristics linked to a controlling account. In other words, it’s a group of individual general ledger accounts that have related transactions.
What Does Subsidiary Ledger Mean?
A subsidiary ledger is useful to accountants and bookkeepers for a variety of reasons. First, it groups related accounts into one ledger that can be easily totaled and analyzed. It is much easier to review data when it is organized and grouped together. Take the accounts payable ledger for example. This record groups all of the vendors and trade debtors’ accounts together in one place rather than having them spread throughout the accounting system. This way all vendor balances are located in one spot and can be analyzed individually or as a group.
Second, it cleans up and consolidates the general ledger. Rather than having multiple related accounts clogging up the main ledger system, a single subsidiary ledger can sum and report the totals of all related accounts with a single entry. Take the accounts receivable ledger for example.
This sub ledger lists contains all of the account details for every credit customers including dates, balances, payments, and purchases made by each customer. Even a small company can have hundreds of customers who purchase goods on credit. If each customer account was reported in the general ledger, there would be several hundred accounts receivable accounts to sift through when analyzing the main ledger.
Instead, all of these customer accounts are contained into one subsidiary ledger and reported on the main record as a single number. Accountants and bookkeepers can look through the sub if they want more details about individual customer accounts.
Third, they help in error detection. Since the GL is simplified and the sub accounts are totally according to their transaction types, errors in customer accounts or vendor payments can be identified more easily.
Fourth, dividing subsidiary accounts into related sub-ledgers, multiple people can perform bookkeeping procedures. For instance, one person can be in charge of the accounts receivable listings and another person can be in charge of the accounts payable listings.