What Are the Advantages of a Subsidiary Ledger?

by Kathy Adams McIntosh; Updated September 26, 2017

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

Types of Subsidiary Ledgers

Companies incorporate several types of subsidiary ledgers in their accounting systems. Common subsidiary ledgers include an accounts receivable ledger and an accounts payable ledger. An accounts receivable ledger includes individual accounts that apply to each individual customer. Each credit sale is recorded in the specific customer account along with each payment. Each customer account includes a current balance. The current balances for all customers add up to the total accounts receivable balance. The accounts payable ledger includes individual accounts for each vendor. Each invoice received and every payment made is recorded for each specific vendor account. Each vendor account includes a current balance. The current balances for all vendors add up to the total accounts payable balance.

Detailed Information

One advantage of using a subsidiary ledger includes the detailed information maintained in the subsidiary ledger. Each vendor 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 vendor.

Control

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 customer. When a customer disputes a charge, the accounts receivable staff member can review the transactions within that account and determine if the dispute is valid.

Limited Access

Limiting the access of employees to selected accounts provides another advantage of using subsidiary ledgers. Using computer systems, companies can limit employee access to the specific accounts they are responsible for. The other employees lack the ability to see the details of accounts contained in the subsidiary ledger. This allows the company to maintain confidentiality regarding customer or vendor accounts.