Write two common subsidiary ledgers.
Answer (2)
A subsidiary ledger is a detailed record supporting a general ledger account. Two common subsidiary ledgers are the Accounts Receivable Ledger and Accounts Payable Ledger, which track customer debts and supplier credits respectively. They aid in maintaining organized financial records and managing cash flow.
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In business accounting, subsidiary ledgers play a critical role in organizing and managing detailed financial information for a company. They break down the general ledger into more specific categories to allow for easier tracking and analysis of financial transactions. Here are two common types of subsidiary ledgers:
Accounts Receivable Subsidiary Ledger
What : This ledger keeps track of individual customer accounts that owe money to the business. It includes detailed information such as invoices issued, payments received, and outstanding balances for each customer.
Why : It allows businesses to monitor customer payment activities, identify overdue accounts, and manage credit decisions more effectively.
How : Each customer is given a separate account within this ledger. When a sale is made on credit, the details of the invoice are recorded under the specific customer's account. Subsequent payments are also logged here, allowing the business to easily see what each customer owes at any given time.
Accounts Payable Subsidiary Ledger
What : This ledger records the amounts the company owes to its suppliers or creditors. It contains details of purchases on credit, payments made, and amounts still due.
Why : By managing this ledger, a business can keep track of its liabilities, ensure that it pays its creditors on time, and avoid overlooking any outstanding debts.
How : Each supplier or creditor has a separate account within this ledger. Purchases made on credit are documented under the relevant supplier's account, along with any payments made. This setup helps the company monitor its debts, manage cash flow, and plan future purchases efficiently.
In summary, subsidiary ledgers enhance the organization's ability to manage detailed financial information by breaking down larger, aggregated data into more manageable and specific segments.
