Subsidiary ledgers help to keep track of the details of accounts – receivable, payable and internal. Yet with such complexity it can be a nightmare to reconcile unless you’ve made certain considerations before you start.

A subsidiary ledger is created any time a company wishes to track the transactional detail of an account in the general ledger. The general, or control, ledger shows the total value of transactions – whether they are receivables, payables, fixed assets or depreciating assets. However, with so many different and overlapping payment terms it can quickly become impossible to accurately note, track and calculate each account total in the general ledger. This is when subsidiary ledgers become essential. 

Accounts Receivable Subsidiary Ledger 

The reason for needing subsidiary ledgers becomes clear when you begin to unravel the complexity of your Accounts Receivable (AR) ledger. You will have many different customers who purchase different items on credit. Each credit agreement may have different payment terms and expiry dates. You may also find that a single customer will purchase different items, on different payment terms, at different (sometimes overlapping) times.

Keeping track of just a few items with different credit terms for each customer across thousands of customer accounts is impossible on the general ledger, so a subsidiary ledger is used to calculate the totals for each account. The totals are then used in the general ledger to calculate your overall receivable amount.

Subsidiary ledgers are also used to track individual: outgoing payments (Accounts Payable), inventory stock, payroll payments, fixed assets and liabilities, cash flow and project expenses. It is through these subsidiary ledgers that details are noted and overall amounts calculated for use in the general ledger. 

Subsidiary ledgers, subsidiary ledger reconciliation

 

Considerations for good reconciliation

As with all reconciliation activity, forward planning makes life much easier. However, it is all too often the case that accounting staff are left to discover reconciliation best practice through trial and error. So here are some key considerations to make your subsidiary ledger reconciliations easier. Of course, automatic account reconciliation software can take care of this for you – so for a quick financial win contact Adra Match today.

  • Reconciling frequency – It is recommended that you reconcile your subsidiary ledgers at least once a month. If you wait until the year-end then you will likely find it very difficult to understand any mismatched amounts and could prove almost impossible to chase up.
     
  • Post to specific dates – It can be far too tempting to simply post transactions all to the same arbitrary date, usually whatever date you are posting on. However, this can make it difficult to discover which transactions fall over a particular time period and items may not reconcile easily.
     
  • Include all available information – Similarly, it can be tempting to post just the name of the account holder to each transaction in the subsidiary ledger. However, a simple typo can mean you miss the account when reconciling resulting in mismatched totals. It may seem arduous, but try to include all information such as transaction or account numbers to help overcome this common reconciliation issue.
     
  • Policies for posting and reconciling – Every account department should have a written list of practices and policies for filing accounts (especially expenses) and reconciling them. This helps to speed up the reconciliation process whilst reducing the instances of errors and fraud. 

Download our ebook: How to control your transaction flow in your financial and closing process to uncover finance best practices and the 6 hidden benefits to automating your financial department. Alternatively you could book yourself a free demo today with Adra Match today.