What is a subsidiary ledger?

A subsidiary ledger is defined as a group of related accounts that detail transactions of a specific type. This explanation covers the function and purpose of a subsidiary ledger within the accounting system.

The primary role of a subsidiary ledger is to provide detailed information that supports the entries in the general ledger. For instance, accounts receivable, accounts payable, and inventory can each have their own subsidiary ledgers to track all transactions relevant to those specific accounts. This allows for better organization and easier tracking of detailed activity, helping to ensure accurate financial reporting and reconciliation.

By using subsidiary ledgers, a company can manage information by category without cluttering the general ledger, which contains summary-level data for the overall financial position of the company. Each type of subsidiary ledger provides a clearer picture of the accounts involved, makes it easier to investigate discrepancies or monitor financial activities, and serves as useful documentation during audits or reviews.