Accounting Principles I – Subsidiary Ledgers and Special Journals - Quick Guides

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Study GuideAccounting Principles I–Subsidiary Ledgers and SpecialJournals1. Subsidiary LedgersAsubsidiary ledgeris a set (group) of related accounts that all belong to one main account in thegeneral ledger.Think of it like this:•Thegeneral ledgershows thebig total.•Thesubsidiary ledgershows thefull breakdownof that total.What is a Control(Master) Account?Acontrol account(also called amaster account) is the general ledger account that summarizeseverything inside the subsidiary ledger.Important rule:Thetotal of all subsidiary ledger account balances = the balance of the control accountin thegeneral ledger.1.1 Accounts Receivable Subsidiary Ledger (Customers)AnAccounts Receivable (A/R) subsidiary ledgeris also called acustomers’ subsidiary ledger.It contains:one separate account for each customerwho buys on credit.So, instead of keeping all customer credit activity in one big mess, the company can track eachcustomer separately.

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Study GuideWhy is this so important?Most businesses havehundreds or thousands of customerswho:•buy on credit•makepayments (sometimes more than once)•return items•buy again before paying off old balancesIf all those customer transactions were recorded inone Accounts Receivable account, it would beextremely difficult to know:“How much doesthiscustomer still owe?”“What payments did they make?”“Did they return anything?”The subsidiary ledger solves this problem by giving:

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Study Guidequick access to each customer’s balancea clear history of each customer’s activity1.2 Does Posting to Both Ledgers Break the Debit/Credit Rule?No, itdoes not violatethe rule that:Total debits must equal total credits.Even though the same transaction is posted to:•asubsidiary ledger account, and also•thegeneral ledger control account…it still works because:Subsidiary ledger accounts areNOT part of the general ledger.They areextra detail recordsthat support the control account.So the control account stays correct, and the detailed customer/vendor/product records stay correcttoo.

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Study Guide1.3 When Do Businesses Use Subsidiary Ledgers?Companies create subsidiary ledgers whenever they need to track theindividual partsof a generalledger account.Besides Accounts Receivable, common subsidiary ledgers include:1) Accounts Payable Subsidiary Ledger (Creditors)•Separate account foreach supplier/creditor•Tracks how much the company owes each one2) Inventory Subsidiary Ledger•Separate account foreach product•Helps monitor inventory items individually3) Property, Plant, and Equipment (PPE)Subsidiary Ledger•Separate account foreach long-lived asset•Example: buildings, machinery, vehicles, equipment2.Special JournalsRecording every transaction in thegeneral journaland then posting it to thegeneral ledgercan takea lot of time. Even a simple transaction usually needsthree linesin the general journal (two accountlines + one explanation).Then, the transaction must be posted to the correct ledger accounts.And if the transaction affects acontrol account(like Accounts Receivable or Accounts Payable), theposting must happentwice:•once in thesubsidiary ledger

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Study Guide•once in thegeneral ledger control accountTo make this faster, businesses usespecial journals.Why companies use special journalsSpecial journals are used to recordrepetitive transactionsthat:•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 inone line.Then, instead of posting every entry separately to the general ledger, the business posts thetotal ofeach columnat theend of the accounting period.Most merchandising businesses use special journals for:•Sales•Purchases•Cash Receipts•CashDisbursements

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Study Guide2.1Sales JournalTheSales Journalis used to recordcredit sales to customers.It doesNOTinclude:•cash sales•sales returnsA typical sales journal entry includes:•date•invoice number•customer name•amountTheinvoiceis the source document used for this journal.In a basic sales journal:

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