A subsidiary ledger is a group of individual accounts that together provide the detail behind one summary account in the general ledger. The accounts receivable subsidiary ledger, for example, contains a separate account for every customer showing invoices, payments and the balance owed, while the general ledger holds a single accounts receivable account for the total. That summary account is called the control account, and at all times the total of the subsidiary ledger should equal its balance.
Subsidiary ledgers are often called subledgers, and the general idea is explained under subledger. This entry focuses on the common types used in business accounting, how they are kept in balance with the general ledger and why the reconciliation matters.
Common subsidiary ledgers
- Accounts receivable ledger: one account per customer, supporting the accounts receivable control account. It is used to send statements, chase overdue balances and prepare an aging of accounts receivable.
- Accounts payable ledger: one account per supplier, supporting the accounts payable control account and used to schedule payments and check supplier statements.
- Inventory ledger: one record per stock item showing quantities and costs, used with a perpetual inventory system.
- Fixed asset register: one record per asset showing cost, location, depreciation method and accumulated depreciation, supporting the property, plant and equipment accounts.
- Payroll ledger: earnings and withholdings for each employee.
How it works
Each transaction affecting a control account is recorded twice: in detail in the subsidiary ledger and in summary in the general ledger. In a manual system, individual sales invoices are posted daily from the sales journal to each customer's account, while the journal's monthly total is posted as one amount to the control account. In accounting software, the sales or purchasing module updates the subledger and the general ledger at the same moment. Only the control account appears in the trial balance and the financial statements, which keeps the general ledger short and readable.
Worked example: reconciling to the control account
At 31 May, a wholesaler's accounts receivable control account shows $58,400. A listing of its subsidiary ledger shows:
| Customer | Balance |
|---|---|
| Northside Hardware | $21,300 |
| Riverbend Builders | $17,850 |
| Summit Contractors | $12,650 |
| Valley Home Centre | $7,500 |
| Total | $59,300 |
The subledger is $900 higher than the control account. Investigation shows a $900 credit memo for returned goods issued to Riverbend Builders was recorded in the general ledger but not posted to the customer's account. After correcting Riverbend's balance to $16,950, the subledger total is $58,400 and agrees with the control account. If the error had not been found, Riverbend would have been asked to pay $900 it did not owe.
Why subsidiary ledgers matter
Subsidiary ledgers provide the detail needed to run a business: who owes money, whom the business must pay, what stock is on hand and which assets exist. They allow work to be divided, so that one employee can maintain customer accounts while another maintains the general ledger, a basic internal control. Regular account reconciliation between each subledger and its control account is a key month-end task; unreconciled differences are a warning sign of posting errors, cut-off problems or fraud such as fictitious customers or suppliers. Auditors typically obtain a subledger listing, agree its total to the control account, and select individual balances for confirmation or testing. Many companies also review the subledger for unusual items, such as credit balances in receivables or aged receivables that may need an allowance for doubtful accounts.