What are Subsidiary Accounts?

This approach helps to keep the accounting books balanced at all times while still making it easy to retrieve account information and history on each customer. In order to track the usage and the payment activity of each utility customer, the business will establish a subsidiary account for that customer in the accounting records. Each of the subsidiary accounts carry complete information on all customers, including the account number assigned to each individual customer. As the bill for each customer is issued, that invoiced amount is entered into the account along with the invoice number and the issue date.

The total of the subsidiary accounts or records must agree to the balance in Accounts Receivable, the general ledger control account. A subsidiary account is an account that is kept within a subsidiary ledger, which in turn summarizes into a control account in the general ledger. A subsidiary account is used to track information at a very detailed level for certain types of transactions, such as accounts receivable and accounts payable. This section will look at the transactions for Fooz Ball Town and how to post to subsidiary ledgers for accounts receivable and accounts payable. At the end of the accounting period, after the postings have been completed, a list is made of all the individual subsidiary accounts.

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Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. Postings to the general ledger accounts are likewise indicated by noting the general ledger accounts in the Ref. column. Management needs to know the total it owes its various vendors, how much it owes its individual vendors, and when each payment is due. After many years in the teleconferencing industry, Michael decided to embrace his passion for
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• Each individual account in the subsidiary accounts receivable ledger should show the customer’s name, address, credit rating, and credit limit, along with any other vital payment information.
• The balances in subsidiary accounts are typically reconciled to the general ledger account of which they form the detail, usually as part of the month-end closing process.
• It provides the user with the ability to continuously update the balance after posting each transaction.
• Companies create subsidiary ledgers whenever they need to monitor the individual components of a controlling general ledger account.

The total should be equal to the balance stated in the related general ledger account. For example, the general ledger account, Equipment, shows the historical cost of the total equipment owned by the firm. Similar backup information is often necessary for items such as prepaid insurance and plant and equipment. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications.

Subsidiary account definition

Since then, he has contributed articles to a
variety of print and online publications, including SmartCapitalMind, and his work has also appeared in poetry collections,
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league baseball, and cycling. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

Once a payment for that invoice is remitted, it is posted to the account, reducing the outstanding balance due. These are called subsidiary accounts and are placed in a subsidiary accounts receivable ledger. Each individual account in the subsidiary accounts receivable ledger should show the customer’s name, address, credit rating, and credit limit, along with any other vital payment information. The accounts outside of the general ledger which provide the detail for the balance reported in a general ledger account. (The account in the general ledger is known as the control account.) For example, each credit customer’s account balance is contained in a subsidiary account or record.

It provides the user with the ability to continuously update the balance after posting each transaction. Our goal is to deliver the most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos. We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Finance Strategists is a leading financial literacy non-profit organization priding itself on providing accurate and reliable financial information to millions of readers each year. This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content.

Examples of Subsidiary Accounts in a sentence

Since both are zero and match, it would not be necessary to prepare a schedule of accounts payable. If there is a balance, a schedule of accounts payable would be prepared in the same manner as accounts receivable. Subsidiary ledgers provide a separate record of transactions pertaining to individual customers and creditors. It contains a set of related accounts whose balances in total will equal the balance in the controlling account. To illustrate, management needs to know not only the total of its accounts receivable but also the amount that each individual customer owes. Similar posting procedures are followed for subsidiary Accounts Payable and any other subsidiary accounts that are maintained.

The number of subsidiary accounts used, as well as the level of detail with which they are maintained, depends on the needs of the firm’s management. The Accounts Receivable account summarizes information about the beginning balance, the total of all sales and cash collected on account for the period, and the total owed by all of the firm’s customers at the end of the period. The subledger system prevents fraud and errors in the accounting records, and it categorizes the transactions according to three types—the fixed asset sub-ledger, the Accounts Receivable sub-ledger, and the accounts payable sub-ledger. The schedule of accounts receivable for the customers in our example is shown next. Postings to the subsidiary ledger accounts are indicated by noting the customer’s account number in the Ref. column.

They regularly contribute to top tier financial publications, such as The Wall Street Journal, U.S. News & World Report, Reuters, Morning Star, Yahoo Finance, Bloomberg, Marketwatch, Investopedia, TheStreet.com, Motley Fool, CNBC, and many others. These cards show such information as the cost of each item, its estimated life, its salvage value (or residual value), and its insurance coverage. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.

The balances in subsidiary accounts are typically reconciled to the general ledger account of which they form the detail, usually as part of the month-end closing process. This schedule of accounts receivable—often called an accounts receivable trial balance—is totaled. The general ledger account Accounts Receivable and the subsidiary accounts are shown below in the form of T-accounts rather than the running balance form, for the sake of convenience.

What is the difference between a subsidiary ledger and a general ledger?

For example, a company maintains in its accounting software a record of the amount owed to it by each customer. These subsidiary accounts roll up into an accounts receivable ledger, which contains the total owed by each customer. The grand total balance in the accounts receivable ledger rolls up into the accounts receivable control account in the general ledger. Companies create subsidiary ledgers whenever they need to monitor the individual components of a controlling general ledger account. Thanks to the use of accounting software, the process of posting to the control account in the general ledger while also posting to the customer subsidiary accounts is much easier than in times past. Often, the accounting software is configured to allow for the entry of the data on one screen.

• Similar backup information is often necessary for items such as prepaid insurance and plant and equipment.
• The combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in the general ledger.
• Malcolm’s other interests include collecting vinyl records, minor
  league baseball, and cycling.
• This approach helps to keep the accounting books balanced at all times while still making it easy to retrieve account information and history on each customer.
• Companies may have hundreds or even thousands of customers who purchase items on credit, who make one or more payments for those items, and who sometimes return items or purchase additional items before they finish paying for prior purchases.

The individual cards serve as a subsidiary ledger to the controlling Equipment account. Similar subsidiary accounts are maintained for payables and, depending on the firm’s needs, for other accounts such as Property, Plant, and Equipment. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

To maintain control, postings to subsidiary accounts should be made on a daily basis. By contrast, postings to general ledger accounts need to be made only periodically. The ledger provides invoice dates and numbers, credit memorandums, payments made against the credit sales, discounts, and returns and allowances. Each entry is posted to both the appropriate general ledger accounts and the individual customer accounts. When subsidiary accounts are maintained, it is necessary to post journal entries to both the general ledger (or controlling account) and the subsidiary account.

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From there, the software records the post in both the control account and in the individual customer’s subsidiary account simultaneously. This approach can help eliminate issues such as posting to the customer account but forgetting to post in the control account of the general ledger, or vice versa. The collective activity in the subsidiary accounts is also mirrored in the control account that is maintained as part of the general ledger. When invoices are issued, those are accounted for in not only the subsidiary accounts but also in the Accounts Payable area of the ledger. As customers remit payments, those are accounted for in the Accounts Receivable area of the ledger as well as in the customer’s own subsidiary account.

A subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account. The general ledger account that summarizes a subsidiary ledger’s account balances is called a control account or master account. For example, an accounts receivable subsidiary ledger (customers’ subsidiary ledger) includes a separate account for each customer who makes credit purchases. The combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in the general ledger. Companies may have hundreds or even thousands of customers who purchase items on credit, who make one or more payments for those items, and who sometimes return items or purchase additional items before they finish paying for prior purchases. But the accounts receivable subsidiary ledger provides quick access to each customer’s balance and account activity.