P2: Subsidiary Ledgers | ACCOUNTING ESSENTIALS

🎯 Learning Objectives

Understand the purpose and structure of subsidiary ledgers
Explain the relationship between control accounts and subsidiary ledgers
Identify common subsidiary ledgers used in accounting systems
Perform the control check to verify ledger accuracy
Describe how transactions flow from journals to subsidiary ledgers
Apply subsidiary ledger information for customer/supplier management

📚 Background & Principles

Subsidiary ledgers are detailed records that support control accounts in the general ledger. They provide itemized information about individual customers, vendors, or other account categories that would otherwise be buried in a single aggregated balance.

Core Principle: The total of all balances in a subsidiary ledger MUST equal the balance in its corresponding control account in the general ledger. This "control check" ensures accuracy throughout the accounting system.

💡 Key Insight: Think of the general ledger as a doorman who counts heads and knows 100 people are in a party, while the subsidiary ledger is the guest list showing exactly WHO is inside—names, how much they owe, and when they arrived.

🔑 Key Concepts

Control Account

A summary account in the general ledger that shows the total amount owed by a category (e.g., Accounts Receivable Control).

Subsidiary Ledger

A collection of accounts providing detailed information about individual customers, vendors, or items within a control account.

Accounts Receivable Subsidiary Ledger

Contains individual customer accounts showing each customer's balance. Used for billing and collection follow-up.

Accounts Payable Subsidiary Ledger

Contains individual vendor accounts showing amounts owed to each supplier. Used for payment scheduling.

Control Check

The process of verifying that subsidiary ledger totals equal the control account balance.

Schedule of Accounts Receivable/Payable

A report listing all individual account balances in a subsidiary ledger, used for reconciliation.

🔍 Deep Dive

Explore subsidiary ledgers at different levels of depth:

🟢 Foundational Level

Understanding the basic concept of subsidiary ledgers.

The Party Guest List Analogy

The Doorman vs. The Guest List

The Doorman (Control Account):

Stands at the door and counts heads. He knows "100 people are inside" but can't tell you their names.

The Guest List (Subsidiary Ledger):

Has a detailed list: "Alice: $500 balance, Bob: $300 balance, Charlie: $200 balance..."

The Golden Rule:

The total on the guest list MUST match the doorman's count exactly.

Common Subsidiary Ledgers

Control Account	Subsidiary Ledger	Purpose
Accounts Receivable	Customers Sub-Ledger	Track what each customer owes
Accounts Payable	Vendors Sub-Ledger	Track what we owe each supplier
Inventory	Inventory Sub-Ledger	Track each product quantity

🟡 Standard Level

Understanding posting procedures and verification.

The Posting Flow

How Information Moves Through the System

Step 1: Record in Journal

Transaction recorded in Sales Journal or Cash Receipts Journal.

Step 2: Post to Subsidiary

Individual customer account updated DAILY with transaction details.

Step 3: Post Column Total

At month-end, column TOTAL posted to Accounts Receivable Control.

Step 4: Control Check

Schedule of AR = AR Control balance? They MUST match!

Example: Customer Account Activity

Date	Description	Debit	Credit	Balance
Oct 1	Invoice #801	$4,500		$4,500
Oct 5	Payment		$4,500	$0
Oct 10	Invoice #805	$2,000		$2,000
Oct 20	Payment		$1,000	$1,000

🔴 Advanced Level

Understanding control account mechanics and error detection.

Why Use Subsidiary Ledgers?

Benefits for Management:

Customer Management:

Know exactly who owes money, how much, and for how long. Essential for collection efforts.

Internal Control:

Separates detailed tracking from summary reporting. Reduces error risk and fraud opportunity.

Error Detection:

If Control ≠ Subsidiary Total, you know an error exists somewhere in the system.

Common Posting Errors

Error Type	Effect on Control Check
Posted to wrong customer	Control still balances, but customer wrong
Math error in subsidiary	Control ≠ Subsidiary Total
Forgot to post journal total	Control too low vs. Subsidiary
Posted twice	Control too high vs. Subsidiary

🎨 Interactive: The Control Check

Enter individual customer balances to see if they match the General Ledger control account:

Guest List (Subsidiary Ledger)

Customer Alpha ($)

Customer Beta ($)

Customer Gamma ($)

Subsidiary Total: $12,500

Doorman (Control Account)

$12,500

Accounts Receivable (GL)

🚫 Common Misconceptions & Professional Tips

❌ Misconception 1: "The control account is more accurate than the subsidiary ledger."

✅ Reality: Both should match! The control account is a summary, and the subsidiary provides detail. If they differ, BOTH need to be checked for errors.

❌ Misconception 2: "Transactions are posted to both the control account and subsidiary ledger at the same time."

✅ Reality: Individual transactions are posted to subsidiary ledger accounts DAILY, but column totals are posted to control accounts only at MONTH-END.

❌ Misconception 3: "The subsidiary ledger is part of the general ledger."

✅ Reality: The subsidiary ledger is a SEPARATE set of accounts that supports (provides detail for) the control account in the general ledger.

💡 Professional Tip #1: Always prepare a Schedule of Accounts Receivable at month-end. It should equal your AR Control balance.

💡 Professional Tip #2: Use subsidiary ledgers proactively. Review overdue customer accounts to improve cash flow.

💡 Professional Tip #3: When errors are discovered, check both the journal entry AND the subsidiary posting to find the source.

🧠 Memory Aids & Quick Reference

⚡ Quick Recall: Control Check

Subsidiary Total = Control Account Balance

If they don't match, look for:

• Missing postings • Double postings • Math errors • Wrong customer/vendor

📊 AR Control

Summary of all customer receivables. Shows "how much total" but not "who owes."

📋 AR Subsidiary

Detailed customer-by-customer breakdown. Shows "who owes how much."

📊 AP Control

Summary of all amounts owed to vendors. Shows "how much we owe total."

📋 AP Subsidiary

Detailed vendor-by-vendor breakdown. Shows "who we owe and how much."

📖 Glossary

Control Account

A general ledger account that summarizes the total balance of a subsidiary ledger, providing a summary view of a category of transactions.

Subsidiary Ledger

A group of accounts that provides detailed information supporting a single control account in the general ledger.

Accounts Receivable Subsidiary Ledger

A ledger containing individual customer accounts showing the amount each customer owes and their payment history.

Accounts Payable Subsidiary Ledger

A ledger containing individual vendor accounts showing the amount owed to each supplier and purchase history.

Schedule of Accounts Receivable

A report listing all individual customer balances in the accounts receivable subsidiary ledger, used to verify the control account.

Schedule of Accounts Payable

A report listing all individual vendor balances in the accounts payable subsidiary ledger, used to verify the control account.

Posting

The process of transferring information from journals to ledgers, either individually (daily) or by totals (month-end).

Aging of Accounts

Sorting accounts receivable or payable by how long they've been outstanding, used to assess collection/payment patterns.

Subsidiary Ledgers