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.
Licenses and Attributions
All rights reserved content
Theory of Control and Subsidiary Accounts. Authored by: Michael Allison. License: All Rights Reserved. License terms: Standard YouTube License
