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Accounting Principles I – Subsidiary Ledgers and Special Journals

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    Study Guide Accounting Principles I – Subsidiary Ledgers and Special Journals 1. Subsidiary Ledgers A subsidiary ledger is a set (group) of related accounts that all belong to one main account in the general ledger. Think of it like this: • The general ledger shows the big total . • The subsidiary ledger shows the full breakdown of that total. What is a Control (Master) Account? A control account (also called a master account ) is the general ledger account that summarizes everything inside the subsidiary ledger. Important rule: The total of all subsidiary ledger account balances = the balance of the control account in the general ledger. 1.1 Accounts Receivable Subsidiary Ledger (Customers) An Accounts Receivable (A/R) subsidiary ledger is also called a customers’ subsidiary ledger . It contains: one separate account for each customer who buys on credit. So, instead of keeping all customer credit activity in one big mess, the company can track each customer separately.

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    Study Guide Why is this so important? Most businesses have hundreds or thousands of customers who: • buy on credit • make payments (sometimes more than once) • return items • buy again before paying off old balances If all those customer transactions were recorded in one Accounts Receivable account , it would be extremely difficult to know: “How much does this customer still owe?” “What payments did they make?” “Did they return anything?” The subsidiary ledger solves this problem by giving:

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    Study Guide quick access to each customer’s balance a clear history of each customer’s activity 1.2 Does Posting to Both Ledgers Break the Debit/Credit Rule? No, it does not violate the rule that: Total debits must equal total credits. Even though the same transaction is posted to: • a subsidiary ledger account , and also • the general ledger control account …it still works because: Subsidiary ledger accounts are NOT part of the general ledger . They are extra detail records that support the control account. So the control account stays correct, and the detailed customer/vendor/product records stay correct too.

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    Study Guide 1.3 When Do Businesses Use Subsidiary Ledgers? Companies create subsidiary ledgers whenever they need to track the individual parts of a general ledger account. Besides Accounts Receivable, common subsidiary ledgers include: 1) Accounts Payable Subsidiary Ledger (Creditors) • Separate account for each supplier/creditor • Tracks how much the company owes each one 2) Inventory Subsidiary Ledger • Separate account for each product • Helps monitor inventory items individually 3) Property, Plant, and Equipment (PPE) Subsidiary Ledger • Separate account for each long - lived asset • Example: buildings, machinery, vehicles, equipment 2. Special Journals Recording every transaction in the general journal and then posting it to the general ledger can take a lot of time. Even a simple transaction usually needs three lines in the general journal (two account lines + one explanation). Then, the transaction must be posted to the correct ledger accounts. And if the transaction affects a control account (like Accounts Receivable or Accounts Payable), the posting must happen twice : • once in the subsidiary ledger

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    Study Guide • once in the general ledger control account To make this faster, businesses use special journals . Why companies use special journals Special journals are used to record repetitive transactions that: • happen again and again, • use the same accounts, • and have a similar description each time. Instead of writing long journal entries, the transaction can be recorded in one line . Then, instead of posting every entry separately to the general ledger, the business posts the total of each column at the end of the accounting period . Most merchandising businesses use special journals for: • Sales • Purchases • Cash Receipts • Cash Disbursements

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    Study Guide 2.1 Sales Journal The Sales Journal is used to record credit sales to customers . It does NOT include: • cash sales • sales returns A typical sales journal entry includes: • date • invoice number • customer name • amount The invoice is the source document used for this journal. In a basic sales journal:

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