What Is an Accounts Receivable Subsidiary Ledger?
An accounts receivable subsidiary ledger is an accounting ledger that shows the transaction and payment history of each customer to whom the business extends credit. The balance in each customer account is periodically reconciled with the accounts receivable balance in the general ledger to ensure accuracy. The subsidiary ledger is also commonly referred to as the subledger or subaccount.
- The accounts receivable subsidiary ledger shows the transactions and payment history of each customer that has been extended credit.
- The balance in the accounts receivable subsidiary ledger is reconciled with accounts receivables in the general ledger.
- Tracking outstanding customer payments is one benefit of the accounts receivable subsidiary ledger.
- The accounts receivable subsidiary ledger provides detailed insight into a business that can help it operate in a more targeted fashion.
Understanding an Accounts Receivable Subsidiary Ledger
The accounts receivable subsidiary ledger shows all the sales made on credit by a business. It provides details on these sales by showing invoice dates and numbers, credit memorandums, payments made against the credit sales, discounts, and returns and allowances. The sum of all invoices in the accounts receivable subsidiary ledger should equal that of the accounts receivables on the general ledger, also known as the control account.
The usefulness of the accounts receivable subsidiary ledger lies in the fact that it can show, at a glance, the account status and amounts owed by a specific customer. For example, the general balance may show a total accounts receivable balance of $100,000, but it will not show which customer owes how much. This information can be gleaned from the accounts receivable subsidiary ledger. The ledger will show, for example, that Customer A owes $15,000, Customer B owes $25,000, Customer C owes $5,000, and so on.
Without this subsidiary ledger, a company with many customers would have difficulty tracking customer payments and transactions. Like other subsidiary ledgers, the accounts receivable subsidiary ledger merely provides details of the control account in the general ledger. Other subsidiary ledgers include the accounts payable subsidiary ledger, inventory subsidiary ledger, and property, plant, and equipment subsidiary ledger.
Advantages of an Accounts Receivable Subsidiary Ledger
Though keeping an accounts receivable subsidiary ledger in addition to a general ledger requires more work and documentation, it is typically worth the extra effort. The analysis that can go into the detail provided by the accounts receivable subsidiary ledger helps organize a company and allows it to perform in a more targeted manner.
The accounts receivable subsidiary ledger can provide insight into customer demographics by profitability, prevent internal fraud, monitor past-due obligations, organize different aspects of revenues, and avoid customer overpayments.
The general ledger is not able to provide this much detail and so having an accounts receivable subsidiary ledger, or any other subsidiary ledger for that matter, is a real benefit to a company's operations. It can greatly assist in making helpful adjustments to a company's business model in providing the insight needed to achieve higher revenues and targeted business expansion. It can also help with managing current assets and current liabilities.