Transactions as They Come: Q2

Q2: What are subsidiary ledgers?


As well as the accounts in a general ledger, a firm can also have subsidiary ledgers for those accounts in the general ledger where a firm wants to record further detail. Accounts that often have subsidiary ledgers are Accounts receivable, Accounts payable, Plant and equipment (and other types of non-current assets) and Inventories.

The key thing to remember about subsidiary ledgers is that they are supplementary accounts that provide additional detail to support the balance in a control account in the general ledger. Also, remember that before the widespread use of computers the various subsidiary ledgers were separate actual books. Keeping them physically separate from the big general ledger of a firm was practical in that it allowed people to access and use the detail from a subsidiary ledger separately from the general ledger; and it helped to prevent the general ledger from becoming a book that was too big and unwieldy to use effectively. With the use of computers, physical books are typically no longer used. Subsidiary ledgers largely no longer exist as separate books to a firm’s general ledger. Typically, everything is digitised and sitting on the same hard drive of the computer system (or, increasingly, in the cloud).  Yet the idea of separating out detail from some accounts in the general ledger is still useful and, as we will see, it also helps to provide some degree of internal control over key (and potentially vulnerable) areas of a firm’s accounts, resources and activities.