Lesson: Subsidiary Accounts and Ledgers

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Lesson Plan

Subsidiary Accounts and Ledgers


Once you have studied an Accounting Diploma more information about this course available here you will realize that most organisations these days use some form of accounting software to handle the financial management and recording of that business. This means much of the double entry bookkeeping processes are handled automatically. Even then it is really important to understand the principles and be able to carry out double entry bookkeeping tasks manually so that you are able to trace errors more easily and you know how to perform one side of a ledger entry affects other entries in both control and subsidiary accounts and ledgers. 


What is a subsidiary ledger?

Also known as a subledger or a subaccount, a subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account. They are supplemental accounts that provide the information which supports the balance in a control account. More information on bookkeeping and accounting certificate

A subsidiary ledger can be set up for virtually any general ledger account. However, they are usually only created for areas in which there are high transaction volumes, which limits their use to a few areas, such as:

  • Accounts payable ledger
  • Accounts receivable ledger
  • Fixed assets ledger
  • Inventory ledger
  • Purchases ledger

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 analysed. It is much easier to review data when it is organised and grouped together. Take the accounts payable ledger for in stance. This ledger 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 of the vendor balances are located in one spot and can be analysed individually  or as a group. It is also useful as it consolidates and cleans up 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. Other ways it is useful to accountants and bookkeepers is by helping in error detection – since the general ledger 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.


Sample practice questions – Honey Bees Mowing

Honey Bees Mowing is a small lawn mowing business which provides a service to corporate customers. It offers a 30 day account. Complete Computing and PowerBuild Gymnasium have taken advantage of this facility.

Honey Bees Mowing buys its fuel from The Corner Service Station. It uses compost bins supplied by Central Rubbish to dispose of the lawn clippings. Both The Corner Service Station and Central Rubbish offer 30 day accounts.

Honey Bees Mowing with National Banking Group.

Using the invoices and statements:

  1. Check the supplier invoices and statements for accuracy.
  2. Check the appropriate journal entries against the bank statement.
  3. Enter any direct credits into the appropriate ledgers.
  4. You wrote the following cheques:
    1. 28 Feb 2018 – Cheque No. 770989 – Payment to Central Rubbish for $102
    2. 28 Feb 2018 – Cheque No. 770990 – Payment to Corner Service Station for $401
    3. Enter the supplier invoices into the credit and general ledger.
    4. The fuel and oil will be entered into the general expenses account in the general ledger and the rubbish bins in the cleaning account. Payments are already entered, but you will need to include them when you calculate the closing balance.
    5. Create the account payable schedule.
    6. Complete the debtor ledger and general ledger journals using the bank statement and Honey Bees Mowing invoice. The empty journals are provided for you. They have an opening balance. The payments from last month are entered as well.
    7. Create debtor statements for PowerBuild Gymnasium and Complete Computing.
    8. Create the account receivable schedule.


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