10.2: Subsidiary Ledgers and Control Accounts

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A subsidiary ledger is a detailed list to support a control account. A control account appears on the balance sheet in summary or total, and are accounts like accounts receivable, accounts payable, and inventory. This video explains the theory (the video refers to a Debitor account which is Accounts Receivable and and a Creditor account which is Accounts Payable. A Debtor is a customer and a Creditor is a vendor)

A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/llfinancialaccounting/?p=184

This section will look at the transactions for Fooz Ball Town and how to post to subsidiary ledgers for accounts receivable and accounts payable.

Accounts Receivable Subsidiary Ledger

The accounts receivable subsidiary ledger will contain an account for each individual customer. The sales, payments, and returns and allowances are recorded into the individual customer accounts as well as the bigger picture (control account) accounts receivable account. For Fooz Ball Town, the sales entries were:

July 5 Sold $5,000 of merchandise inventory, terms 1/15, n 30, FOB Destination with a cost of goods sold of $3,000 to Robby Red.
July 10 Sold $1,500 of merchandise inventory for cash, FOB Shipping Point, with a cost of goods sold of $1,000.
July 15 Received payment from Robby Red from July 5 sale less the discount.
July 30 Sold $7,000 of merchandise inventory, terms 1/15, n 30, FOB Shipping point with cost of goods sold $5,000 to Bobby Blue.

These entries were recorded in the sales journal and cash receipts journal as follows:

Sales Journal
Date	Customer	DR Accounts Receivable	DR Cost of goods sold
Date	Customer	CR Sales	CR Inventory
July 5	Robby Red	$5,000	$3,000
July 30	Bobby Blue	7,000	5,000
TOTALS		$12,000	$8,000

Cash Receipts Journal
Date	Customer	DR Cash	DR Sales	CR Accounts	CR Sales	DR Cost of goods Sold
Date	Customer	DR Cash	Discounts	Receivable	CR Sales	CR Inventory
July 10	Cash Sale	1,500			1,500	1,000
July 15	Robby Red	4,950	50	5,000
TOTALS		6,450	50	5,000	1,500	1,000

These journals would be posted to the Accounts Receivable control account like this:

Account: Accounts Receivable
Date	Description	Debit	Credit	Balance
July 31	from Sales Journal	12,000		12,000
July 31	from Cash Receipts Journal		5,000	7,000

The customer (subsidiary) ledger would be updated for Robby Red and Bobby Blue as:

Customer Account: Robby Red
Date	Description	Debit	Credit	Balance
July 5	Sale	5,000		5,000
July 15	Payment		5,000	-0-

Customer Account: Bobby Blue
Date	Description	Debit	Credit	Balance
July 15	Sale	7,000		7,000

At the end of the period, a schedule is prepared to verify (or prove) the Accounts Receivable (control account) balance reported on the balance sheet. This schedule is a listing of all customers with the ending amounts owed and should always match the ending balance in Accounts Receivable. The schedule of accounts receivable for Fooz Ball Town would be:

Fooz Ball Town
Schedule of Accounts Receivable
July 31

Robby Red	$0
Bobby Blue	7,000
Total Accounts Receivable	$ 7,000

Note: It would not be necessary to include customers with zero balances but it is included here just so you can see how the subsidiary ledger works. Notice how the schedule of accounts receivable balance equals the ending accounts receivable balance (control account).

Accounts Payable Subsidiary Ledger

The accounts payable subsidiary ledgers works the same way as accounts receivable with the control account of accounts payable and the subsidiary ledger a vendor ledger to provide a listing of everyone we owe. The purchases, payments, returns and allowances are recorded in the individual vendor accounts as well as in the accounts payable account. The purchase transactions for Fooz Ball Town are:

July 12 Purchased $10,000 of merchandise inventory, terms 2/15, n 45, FOB Destination from Gus Grass.
July 16 Returned $2,500 of merchandise damaged in shipment from July 12 purchase.
July 25 Paid for the July 15 purchase from Gus Grass less the return and discount.

These transactions were recorded, under the perpetual inventory method, in the following journals:

Purchases Journal
Date	Vendor	DR Merchandise Inventory
Date	Vendor	CR Accounts Payable
July 12	Gus Grass	10,000
TOTALS		10,000

Cash Disbursement Journal
Date	Account	DR Accts Payable	CR Mdse Inventory	CR Cash
July 25	Gus Grass	7,500	150	7,350

General Journal
Date	Account	Debit	Credit
July 16	Accounts Payable	2,500
	Merchandise Inventory		2,500

These journals would be posted to the Accounts Payable control account like this:

Account: Accounts Payable
Date	Description	Debit	Credit	Balance
July 16	Gus Grass Return	2,500		-2,500
July 31	from Purchases Journal		10,000	7,500
July 31	from Cash Disbursements Journal		7,500	-0-

The vendor (subsidiary) ledger would be updated for Gus Grass:

Vendor Account: Gus Grass
Date	Description	Debit	Credit	Balance
July 12	Purchase		10,000	10,000
July 16	Return	2,500		7,500
July 25	Payment		7,500	-0-

The vendor balance for Gus Grass is $0 and the accounts payable balance is $0. Since both are zero and match, it would not be necessary to prepare a schedule of accounts payable. If there is a balance, a schedule of accounts payable would be prepared in the same manner as accounts receivable.