What types of subsidiary ledgers are used in manufacturing companies (Part I)?

In our computerized world most accounting records are maintained in accounting software databases or spreadsheets, and accountants don’t think much in terms of general ledger or subsidiary ledgers like they did when most accounting records were maintained on paper. However, such concepts still exist. In this first part of the two-part article we will discuss what subsidiary ledgers are and look at an example of an accounts receivable subsidiary ledger (i.e., accounts receivable aging).

1. Nature of subsidiary ledgers

Note: This is the first part of the two-part article. For the second part, refer to What types of subsidiary ledgers are used in manufacturing companies (Part II)?.

Subsidiary ledger is a group of similar accounts that support a general ledger control account. The total balance of all records in a subsidiary ledger equals the balance in a corresponding general ledger control account. Examples of subsidiary ledgers are accounts receivable subsidiary ledgers and accounts payable subsidiary ledgers.

Companies maintain a general ledger – which is a record containing all accounts that make financial statements. Some general ledger accounts are associated with hundreds or thousands of individual accounts (records), and thus, it is not practical or feasible to directly record activity in these individual accounts in the general ledger. Instead, subsidiary ledger accounts are used; and summarized information about activity in such subsidiary ledgers is recorded in general ledger accounts. For example, a company may have a list of customers and transactions with them (e.g., sales on credit, cash collections, discounts) which are recorded in an accounts receivable (customers’) subsidiary ledger. Summarized amounts of such activity are posted to the accounts receivable general ledger control account. Using subsidiary ledgers helps to reduce information overload in the control account.

In the past, subsidiary ledgers were maintained on paper while nowadays most subsidiary ledgers are maintained electronically in accounting software or spreadsheets. Subsidiary ledgers represent tables which should be reconciled to the corresponding general ledger accounts at the end of a period. For more information about such reconciliations, refer to the article How to prepare general ledger to sub-ledger reconciliation.

Let’s take a look at some common subsidiary ledger accounts in a manufacturing company.

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