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Subsidiary Ledgers and Special Journals Essay Sample

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Subsidiary Ledgers and Special Journals Essay Sample

Companies record all accounting transactions using ledgers. A general ledger contains the balances from every account the enterprise uses for financial recording and forms the central location for reporting financial transactions. Subsidiary ledgers contain detailed information from selected accounts. The total of each subsidiary ledger must equal the total for the corresponding account in the general ledger. Numerous advantages occur when businesses use subsidiary ledgers.

Subsidiary Ledgers and Special Journals

One advantage of using a subsidiary ledger includes the detailed information maintained in the subsidiary ledger. Each merchant listed in the accounts payable ledger includes detailed transaction information. The ledger includes each invoice, the date received, the dollar amount and every payment mailed to the merchant. Another advantage of using a subsidiary ledger revolves around the level of control a company has with the financial information contained in the subsidiary ledger. An accounts receivable ledger allows the credit manager and accounts receivable staff to control the current balances of each client. When a client disputes a charge, the accounts receivable staff can analyze the transactions within that account and determine if the dispute is valid. Lastly, by limiting the access of employees to selected accounts provides another advantage of using subsidiary ledgers. With the use of computer systems, companies can limit employee access to the specific accounts they are responsible for.

This allows the company to maintain confidentiality regarding customer or vendor accounts. A subsidiary ledger is a collection of accounts with a shared commonality. It is an addition to the general ledger. A subsidiary ledger simplifies the posting procedure by eliminating the details of individual balances from the general ledger. The control account is a summary review in the general ledger.

The use of a control account is to keep the general ledger exempt from details, but keep the correct totals for the financial statements. The two general ledger accounts that may act as control accounts are the Accounts Receivable and Accounts Payable accounts. The details for these accounts will be entered in the subsidiary ledger accounts with only the totals being entered into the general ledger. The advantage of using subsidiary ledgers is to provide more detailed information that would be available in the General Ledger. The information in a subsidiary ledger is intended to be used by a company’s managers and employees and is not used in the preparation of financial statements.

References
www.ehow.com; what are the Advantages of a Subsidiary Ledger? Aug. 2013

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