Subsidiary Ledger – Bank Recon Club

Ready to learn what does subsidiary ledger consists of? Read on… A subsidiary ledger (SL), at a minimum, should comprise 9 essential things. First, creating and using an SL takes time, so it should be useful for a business and an accounting office. Subsidiary ledgers must be helpful to justify their usage. Indeed, the minimum requirements ensure that all important information is included in an SL for fast access to data. It is more beneficial for a company when customer data, including all details, is readily available. However, other information is still needed to improve a subsidiary ledger. An example is a tax number of a supplier or a client. However, other things may not be discussed in this post. This post does not include everything about subsidiary ledgers because these are only based on the actual experiences of our contributors. For instance, a subsidiary ledger of an organization may differ from others. Every organization has its own accounting requirements. Similarly, some accounting systems have limitations on the data allowed. They may not allow the encoding of customer addresses, for example. Moreover, this is only a discussion and for general purposes only. This post will be improved to in the future. Name of account A name of an account is usually provided in a subsidiary ledger. For example, a bank name and account number must be included in creating a bank account SL. Bank accounts are usually monitored through sub-ledgers. In addition, a customer’s name must be correctly encoded in an SL for tracking accounts receivables. Monitoring credit transactions with clients is done through subsidiary ledgers. Moreover, an item name must be provided for monitoring inventories. Inventories are usually grouped by their types. Account code An account code is a unique identifier of an account which are controlled to avoid duplication. To show, a customer should have only one account number regarding credit sales. All transactions are recorded and retrievable easily as a need arises. Indeed, bookkeepers will be confused definitely when there are too many subsidiary ledgers of an account holder. Payment can be deducted to an incorrect accounts receivable subsidiary ledger that may cause negative balances at the end of a month. Certainly, a unique account code is a control that ensures that all transactions of a client are recorded in a single subsidiary ledger. It is a reason that there should be no multiple SLs for an account. However, there are exceptions for banks that allow one account holder to have multiple bank account numbers. It is also observed that most bank tellers and accountants need to extend working hours just to balance their cash with records because of these reasons. Tax Identification Number (if applicable) A subsidiary ledger should show the tax registration of a supplier and service provider for ease of paying taxes. For instance, some countries usually require deducting withholding taxes when paying for goods and services. Deductions are required to be remitted to the government in the ensuing month. Truly, registration numbers are used when remitting withholding taxes to a taxman (IRS for U.S). Penalties and interest can incur when the remittance of taxes is delayed because of incomplete data. In addition, preparing tax returns for withholding taxes is more efficient, since all data is already available. There is no need to spend more time looking for a Tax identification number since it is already available in subsidiary ledgers. Address/Contact Number It is likewise recommended to include addresses and contact numbers in subsidiary ledgers. Contacting customers and supplier is faster compared to not having those details. For example, it is simpler to send demand letters to customers because their locations can be determined immediately. As a result, collection targets can be achieved at a faster rate. Dates of financial transactions It is certainly required to include dates of financial transactions in a subsidiary ledger. Notably, all accounting records should have dates, so that the accrual method is applied consistently throughout an accounting period. A transaction is recorded when it occurs, not when it is known. Certainly, dates help accountants create reports in a particular period. It can be a monthly, quarterly, or annual report. In addition, dates likewise show when an asset is owned and when an obligation is begun. It answers when an entity owns something at a particular time and when an obligation is due from a reference point in time. Particular The particular section shows the description of a transaction. For instance, it describes clearly what a disbursement is all about. “Payment of 100 units of computers” is one example. Indeed, a particular usually includes all the details of an accounting entry. Official receipts and charge invoices are usually included. Truly, a particular might show a relationship with other prior transactions. A previous journal entry for credit sales is usually referenced in its subsequent collection. Reference The reference is an accounting entry number of a financial transaction. First, the reference number usually shows the year and month of a transaction. It is done to know easily when a transaction occurred without looking at the dates. Furthermore, it must also have a third number in chronological order. Accounting entries have their own unique numbers. Moreover, the final numbers are usually separated with dashes for simple identification of the period. “xx23-01-100001” is an example that reads as year/month/unique numbers. Debits and credits of transactions Debits and credits are an integral part of a subsidiary ledger. Notably, they describe the effects of transaction histories on the running balance of an account. In fact, a debit to an asset is an addition, while a debit to a liability is a deduction. Conversely, a credit to an asset is a deduction, while a credit to a liability is an addition. Hence, both debits and credits are shown in SLs to show the activities of the account over time. Running Balance The running balance, finally, is included to show the balance of an account for a particular period. To emphasize, without this balance, a subsidiary ledger is useless. What is the use of the things discussed above without running balances? Indeed, running balances of SLs is important when creating a report in accounting. A balance sheet is doubtful without supporting subsidiary ledger balances. Moreover, users of financial statements usually want balances of an account in a particular period in the past. Those can be used for auditing or other analysis.