11.1 Subsidiary Ledger Systems

1. 11.1 Subsidiary Ledger Systems

2. As a business grows, its ledger grows too—the number of accounts for ________________ (A/R) and __________________ (A/P) increases as the business expands. Accounts Receivable and Accounts Payable are the two accounts that appear on the ____________________. Each customer’s account and each creditor’s account is kept in a _________________ ledger. The main ledger is now called the ­_______________ ledger. customers creditors Balance sheet separate general

3. 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 SUBSIDIARY LEDGER:

4. Debtor/ customer’s accounts (DR) DR  increases  Sales invoice CR  decrease  cash receipt (payment by A/R on account) Accounts Receivable ledger

5. Creditor/ supplier’s accounts (CR) CR  increases  purchase invoice (ie asset or expense) DR  decrease  cheque copy (payment to A/P on account) Accounts payable ledger

6. 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 Accounts receivable ledger example Control Account General Ledger Trial Balance May 31, 20— DR CR Bank $ 200 Accounts Receivable 415 Supplies 140 Accounts Payable 625 Capital 210 Drawings 400 Revenue 1 210Advertising Expense 125 Utilities Expense 325 Wages _450_____ $ 2 055$ 2 055

7. In each new subsidiary ledger, take out the account numbers, 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 source document directly to the subsidiary ledger. There is no journalizing done by the clerks. This is called _____________________________________. 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 _________________________________________ or __________________________________ or ____________________________________. The subsidiary ledgers are updated daily and balanced with their control accounts monthly. alphabetical Junior Clerk Direct Posting Accounts Receivable Trial Balance Accounts receivable listings Accounts Receivable Summary

8. _______________________________—This remains the main ledger of accounts for a business. Continue to list accounts in order of __________________________. When A/R and A/P accounts are removed from the general ledger: a. b. 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 _________________ accounts. These general ledger account balances represent the sum of the balance of the accounts in the __________________________ (eg. A/R control account = total of all individual debtors listed in the subsidiary ledger). General ledger accounting is usually performed by __________________________________________. General Ledger number, ie. Assets = 100s Ledger doesn’t balance Financial statements are incomplete Control Subsidiary Ledgers More experienced accountant  Jr/Sr

9. 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 Review questions # 1 - 24

10. 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

11. 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. 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

13. 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

14. 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

15. 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

16. Ex. #2, 3 p. 480-481 (t), p. 385-386 (w) Ex. #5 p. 482 (t), 389-392 (w) Exercises