Download 11.1 Subsidiary Ledger Systems

11.1 SUBSIDIARY LEDGER SYSTEMS

As a business grows, its ledger grows too—the
customers
number of accounts for ________________
creditors
(A/R) and __________________
(A/P) increases
as the business expands. Accounts Receivable
and Accounts Payable are the two accounts
Balance sheet
that appear on the ____________________.
Each customer’s account and each creditor’s
separate
account is kept in a _________________
ledger.
The main ledger is now called the general
_______________
ledger.
SUBSIDIARY LEDGER:
 Is
a separate ledger that contains a
number of accounts of a similar type,
such as accounts receivable. The
accounts in a subsidiary ledger hold all
the detailed information about one
particular control account in the general
ledger
ACCOUNTS RECEIVABLE LEDGER
Debtor/ customer’s accounts (DR)
 DR  increases  Sales invoice
 CR  decrease  cash receipt (payment by
A/R on account)

ACCOUNTS PAYABLE LEDGER
Creditor/ supplier’s accounts (CR)
 CR  increases  purchase invoice (ie asset
or expense)
 DR  decrease  cheque copy (payment to
A/P on account)

ACCOUNTS RECEIVABLE LEDGER EXAMPLE
Control Account
General Ledger
Trial Balance
May 31, 20—
DR
Bank
$ 200
Accounts Receivable
415
Supplies
140
Accounts Payable
Capital
Drawings
400
Revenue
Advertising Expense
125
Utilities Expense
325
Wages
_450
$ 2 055
CR
625
210
1 210
_____
$ 2 055
Accounts Receivable summary
May 31, 20—
A. Adams
$ 50
C. Hussein
30
B. Kwan
100
S. Smith
25
T. Thomas
175
W. Wand
35
Total
$415
In each new subsidiary ledger, take out the account numbers,
alphabetical
arrange the accounts in _______________________
order, and
place the customers’ and creditors’ addresses on their
account page. Subsidiary ledger accounting is usually
performed by _________________.
The clerks post from the
Junior Clerk
source document directly to the subsidiary ledger. There is no
journalizing done by the clerks. This is called
Direct Posting
_____________________________________.
With the subsidiary ledger system, it is no longer necessary to
list the individual debtor/creditor accounts on the trial balance
or balance sheet. Thus, the total of each subsidiary ledger is
calculated on a statement called
_________________________________________
Accounts Receivable Trial Balance
or __________________________________
or
Accounts receivable listings
____________________________________.
Accounts Receivable Summary
The subsidiary ledgers are updated daily and balanced with
their control accounts monthly.
General Ledger
_______________________________—This
remains the main ledger of
accounts for a business. Continue to list accounts in order of
__________________________.
number, ie. Assets = 100s
When A/R and A/P accounts are removed from the general ledger:
a. Ledger doesn’t balance
b.
Financial statements are incomplete
Thus, we must open two new accounts in the general ledger to replace all
the accounts removed previously and placed in subsidiary ledgers. These
new accounts are called Control
_________________ accounts. These general
ledger account balances represent the sum of the balance of the
accounts in the Subsidiary
__________________________
(eg. A/R control account =
Ledgers
total of all individual debtors listed in the subsidiary ledger). General
ledger accounting is usually performed by
__________________________________________.
More experienced accountant  Jr/Sr
REVIEW QUESTIONS # 1 - 24
1.
2.
3.
What types of accounts increase in number in
a growing business? Customers’ & creditors’
accounts
What usually happens to the other accounts?
Other accounts increase in the size of their
balances
Which type of employee looks after the
accounts receivable accounts in a typical
office? Accounting clerk
4. The customers; accounts are considered to be
a ledger when they are separated from the main
ledger. Explain why. Because a group of accounts
is considered to be a ledger
5. Give the formal name of the customers’ ledger.
Accounts Receivable Ledger
6. Give the formal name of the ordinary creditors’
ledger. Accounts Payable Ledger
7. What type of balance do the accounts of the
creditors usually have? Credit balance
8. What is the formal name of the main ledger?
General Ledger
9. What types of accounts are found in the main
ledger? All types except for individual customers'’ or
creditors’ accounts
10. Give the names of the two accounts in the main
ledger that replace the accounts of customers and
trade creditors. Accounts Receivable Control account
and Accounts Payable Control account
11. Describe the ledger balancing process in the
three-;edger system. Step 1: Make sure that the
subsidiary ledger and the control accounts are
posted to the same date, Step 2: total all of the
account balances in the subsidiary ledger, Step 3:
match the total against the balance of the control
accounts in the general ledger
12. What is a subsidiary ledger? Individual
accounts that make up the total of a control
account in the general ledger
13. The accounts receivable ledger normally has
only accounts with debit balances. How then is it
possible to balance the ledger? It is balanced if
the total of all its accounts is equal to the amount
for the general ledger Accounts Receivable
control account
14. What are the two source document that
affect accounts receivable? Sales invoices and
cash receipts daily summaries
15. How do the clerks who look after the different
ledgers learn about the transactions? From source
documents
16. Describe the work done by the accounts
receivable clerk. They debits a customer’s account for
each sales invoice and credits a customer’s account
for each item on the cash receipts daily summary
17. Describe the work done by the general ledger
clerk. They make complete, balanced accounting
entry for every source document
18. Why is the accounts receivable ledger updated
daily? Because it is important to know a customer's
up-to-date balance
19. Normally, a subsidiary ledger will not balance with
its control account if both ledgers are not posted up
to the same point in time. Explain. Because they
contain different transactions and amounts. They
must have the same entries in order to balance
20. What has to be done if a subsidiary ledger does
not balance with its control accounts? Whose
responsibility is this? The clerk must continue to
check for errors until the ledger and its control
account have the same entries and are in balance.
21. Describe how to take off a subsidiary ledger trial
balance. Add all the account balances in the
subsidiary ledger then check to see that the total
balances with the control account
22. There is a control aspect to the system of
subsidiary ledgers and control accounts.
Describe this. Because people are working
independently on the separate parts and their
work must agree
23. What are the two source documents that
affect accounts payable? Purchase invoices and
cheque copies
24. If a business is large enough to use a
subsidiary ledger system, what else would it likely
use? Accounting software
EXERCISES
Ex. #2, 3 p. 480-481 (t), p. 385-386 (w)
 Ex. #5 p. 482 (t), 389-392 (w)
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