Most of the major companies record all financial transactions using ledgers. Subsidiary ledgers are important to use in businesses because they help keep accounting records in order and completely organized. The balance of each subsidiary ledger must equal the balance for the corresponding account in the general ledger. Several advantages exist when companies use subsidiary ledgers.
A subsidiary ledger contains the specific and more details about an account balance to support general ledger account. For example, the subsidiary ledger for accounts receivable contains all of the detailed information on each of the credit sales to all customers. Using these details information the subsidiary ledger, the Accounts Receivable account would be a control account in the general ledger. As a control account, it will simply report the aggregate amounts of the accounts receivable activities arises from business operations.
A great benefit of using subsidiary ledger is that the company has overall control to its financial information contained in the subsidiary ledger account. When company wants to sort out its individual accounts payable list and accounts receivable list in order to review current account balances then they go for looking into subsidiary ledger and make sure whether there is any dispute over the account balances.
Most common types of subsidiary ledger are:
- Accounts payable ledger
- Accounts receivable ledger