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10.2: Subsidiary Ledgers and Control Accounts

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    26236
  • 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)

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    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
    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
    Discounts Receivable 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
    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.

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    • Theory of Control and Subsidiary Accounts. Authored by: Michael Allison. Located at: youtu.be/_U5ZyGibqKQ. License: All Rights Reserved. License Terms: Standard YouTube License