Subsidiary Ledgers and Control Accounts

A subsidiary ledger is a detailed list to support a control account.  A control account appears on the balance sheet in summary or total, and are accounts like accounts receivable, accounts payable, and inventory.  This video explains the theory (the video refers to a Debitor account which is Accounts Receivable and and a Creditor account which is Accounts Payable. A Debtor is a customer and a Creditor is a vendor)



This section will look at the transactions for Fooz Ball Town and how to post to subsidiary ledgers for accounts receivable and accounts payable.

Accounts Receivable Subsidiary Ledger

The accounts receivable subsidiary ledger will contain an account for each individual customer.  The sales, payments, and returns and allowances are recorded into the individual customer accounts as well as the bigger picture (control account) accounts receivable account.  For Fooz Ball Town, the sales entries were:

  • July 5 Sold $5,000 of merchandise inventory, terms 1/15, n 30, FOB Destination with a cost of goods sold of $3,000 to Robby Red.
  • July 10  Sold $1,500 of merchandise inventory for cash, FOB Shipping Point, with a cost of goods sold of $1,000.
  • July 15 Received payment from Robby Red from July 5 sale less the discount.
  • July 30 Sold $7,000 of merchandise inventory, terms 1/15, n 30, FOB Shipping point with cost of goods sold $5,000 to Bobby Blue.


These entries were recorded in the sales journal and cash receipts journal as follows:

Sales Journal
Date  Customer  DR Accounts Receivable DR Cost of goods sold 
CR Sales CR Inventory
July 5 Robby Red $5,000 $3,000
July 30 Bobby Blue 7,000 5,000
TOTALS   $12,000 $8,000
 

Cash Receipts Journal   
Date  Customer    DR Cash  DR Sales CR Accounts CR Sales  DR Cost of goods Sold
 Discounts  Receivable CR Inventory
July 10 Cash Sale 1,500 1,500 1,000
July 15 Robby Red 4,950 50 5,000
TOTALS   6,450 50 5,000 1,500 1,000
These journals would be posted to the Accounts Receivable control account like this:

Account: Accounts Receivable    
Date Description Debit Credit Balance
July 31 from Sales Journal 12,000 12,000
July 31 from Cash Receipts Journal 5,000 7,000
The customer (subsidiary) ledger would be updated for Robby Red and Bobby Blue as:

Customer Account: Robby Red    
Date Description Debit Credit Balance
July 5 Sale 5,000 5,000
July 15 Payment 5,000 -0-
Customer Account: Bobby Blue    
Date Description Debit Credit Balance
July 15 Sale 7,000 7,000
At the end of the period, a schedule is prepared to verify (or prove) the Accounts Receivable (control account) balance reported on the balance sheet.  This schedule is a listing of all customers with the ending amounts owed and should always match the ending balance in Accounts Receivable.  The schedule of accounts receivable for Fooz Ball Town would be:

Fooz Ball Town 
Schedule of Accounts Receivable 
July 31 
Robby Red $0
Bobby Blue 7,000
Total Accounts Receivable $ 7,000
Note:  It would not be necessary to include customers with zero balances but it is included here just so you can see how the subsidiary ledger works.  Notice how the schedule of accounts receivable balance equals the ending accounts receivable balance (control account).

Accounts Payable Subsidiary Ledger

The accounts payable subsidiary ledgers works the same way as accounts receivable with the control account of accounts payable and the subsidiary ledger a vendor ledger to provide a listing of everyone we owe.  The purchases, payments, returns and allowances are recorded in the individual vendor accounts as well as in the accounts payable account.  The purchase transactions for Fooz Ball Town are:

  • July 12 Purchased $10,000 of merchandise inventory, terms 2/15, n 45, FOB Destination from Gus Grass.
  • July 16 Returned $2,500 of merchandise damaged in shipment from July 12 purchase.
  • July 25  Paid for the July 15 purchase from Gus Grass less the return and discount.


These transactions were recorded, under the perpetual inventory method,  in the following journals:

Purchases Journal 
Date Vendor DR Merchandise Inventory
CR Accounts Payable
July 12 Gus Grass 10,000
TOTALS   10,000
 

Cash Disbursement Journal
Date Account DR Accts Payable CR Mdse Inventory CR Cash
July 25  Gus Grass 7,500 150 7,350
 

 General Journal   
Date Account Debit Credit
July 16 Accounts Payable 2,500
   Merchandise Inventory 2,500
These journals would be posted to the Accounts Payable control account like this:

Account: Accounts Payable
Date Description Debit Credit Balance
July 16 Gus Grass Return 2,500 -2,500
July 31 from Purchases Journal 10,000 7,500
July 31 from Cash Disbursements Journal 7,500 -0-
The vendor (subsidiary) ledger would be updated for Gus Grass:

Vendor Account: Gus Grass
Date Description Debit Credit Balance
July 12 Purchase 10,000 10,000
July 16 Return 2,500 7,500
July 25 Payment 7,500 -0-
The vendor balance for Gus Grass is $0 and the accounts payable balance is $0.  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.

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