What is a Subsidiary Ledger?

A subsidiary ledger stores the details for a general ledger control account. Once information has been recorded in a subsidiary ledger, it is periodically summarized and posted to a control account in the general ledger, which in turn is used to construct the financial statements of a company. Most accounts in the general ledger are not control accounts; instead, individual transactions are recorded directly into them. Subsidiary ledgers are used when there is a large amount of transaction information that would clutter up the general ledger. This situation typically arises in companies with significant sales volume. Thus, there is no need for a subsidiary ledger in a small company.

Types of Subsidiary Ledgers

A subsidiary ledger can be set up for virtually any general ledger account. However, they are usually only created for areas in which there are high transaction volumes, which limits their use to a few areas. Examples of subsidiary ledgers are the accounts payable ledger, accounts receivable ledger, fixed assets ledger, inventory ledger, and purchases ledger.

As an example of the information in a subsidiary ledger, the inventory ledger may contain transactions about receipts into stock, movements of stock to the production floor, conversion into finished goods, scrap and rework reporting, write-offs for obsolete inventory, and sales to customers.

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Posting from Subsidiary Ledgers

Part of the period-end closing process is to post the information in a subsidiary ledger to the general ledger. Posting is usually a manual processing step, so you need to verify that all subsidiary ledgers have been appropriately completed and closed before posting their summarized totals to the general ledger. Otherwise, some late transactions may not be posted into the general ledger until the next reporting period; in this case, the financial statements for the current period and the next period will be incorrect.

Researching with Subsidiary Ledgers

In order to research accounting information when a subsidiary ledger is used, you need to drill down from the general ledger to the appropriate subsidiary ledger, where the detailed information is stored.

Subsidiary Ledger Controls

There is no need to set up subsidiary ledgers from a control or data access perspective, since you can usually restrict access to individual accounts in better accounting software packages.