Accounts receivable ledger: Accounts Receivable Subsidiary Ledger: Definition and Purpose
Below is a simplified example of an Accounts Receivable Ledger for a fictional company called “BestPrint,” which sells printing services to clients on credit. The ledger shows individual customer accounts and their respective transactions. Since an accounts receivable ledger can give you access to detailed information about a customer’s balance, it’d be easier for you to classify your customers.
It can greatly assist in making helpful adjustments to a company’s business model in providing the insight needed to achieve higher revenues and targeted business expansion. As your business grows, so does the number of transactions and accounting processes you need to manage, including more manual AR work. Turning to alternative options like AR tracking software makes good business sense when you reach this point. If the GL had to include detail for each account, it would create a mess and make it difficult for bookkeepers to navigate the GL. That’s why the accounts receivable ledger holds all the details, so the GL account can be slimmed down.
How Is an Accounts Receivable Subsidiary Ledger Used?
Other subsidiary ledgers include the accounts payable subsidiary ledger, inventory subsidiary ledger, and property, plant, and equipment subsidiary ledger. An accounts receivable subsidiary ledger is an account book that shows a list of customers or clients who owe a company. Customers that are in debt to a company are listed in the ledger in order to ensure easy tracking of accounts receivable in a company. This subsidiary ledger also reflect the transaction history of a company, it opens a separate account for each customer owing the company. The amounts of debts owed by customers recorded in this subsidiary ledger is compared with the accounts receivable balance in the general ledger. An accounts receivable subsidiary ledger is the opposite of accounts payable subsidiary ledger.
- The primary document recorded in the accounts receivable ledger is the customer invoice.
- Both of these transactions are tracked in the subsidiary ledger, so at the end of the period the bookkeeper can print a report with the total balances owed by each customer.
- It is more detailed than the general ledger as it also includes the transaction and payment of each customer who availed themselves of credit.
Again, it’s important that the total balance of the subsidiary ledger correlates to the accounts receivable balance in the general ledger. Though keeping an accounts receivable subsidiary ledger in addition to a general ledger requires more work and documentation, it is typically worth the extra effort. The analysis that can go into the detail provided by the accounts receivable subsidiary ledger helps organize a company and allows it to perform in a more targeted manner.
Advantages of an Accounts Receivable Subsidiary Ledger
Wave is a free cloud-based software ideal for small business owners and anyone looking for accounting software on a budget. Although free, it still offers powerful features for your accounting, AR, and banking needs. Its invoicing feature allows for invoice customization, recurring billing, setting payment reminders, and generating an AR aging report. Additionally, Zoho can assist you in managing other accounting processes, including bank reconciliations, accounts payable, generating financial reports, and integrating with third-party apps and software. The main benefit of having an accounts receivable ledger is that gives us access to more detailed information about a business’s accounts receivable. Just imagine having tens or hundreds of customers purchasing or paying at the same time, it’d be hard or maybe even impossible to keep track of a specific customer’s credit balance.
Downloading this free template will get a head start on tracking, managing, and reconciling your receivables more efficiently. This makes it easier to track who has already paid and who still owes your business money. You can classify your accounts receivable for each of the services your business provides. These can all be prevented with the accounts receivable ledger and proper internal controls. Or it could be that there will be no detailed information about the accounts receivable transactions. Fortunately, there are many tools available that can help in the management of accounts receivable such as financial ratios, aging reports, and various special journals.
Alternatives to Manually Keeping Track of Accounts Receivables
It provides details on these sales by showing invoice dates and numbers, credit memorandums, payments made against the credit sales, discounts, and returns and allowances. The sum of all invoices in the accounts receivable subsidiary ledger should equal that of the accounts receivables on the general ledger, also known as the control account. An Accounts Receivable Ledger, also known as a subsidiary ledger or customers’ ledger, is a detailed record that tracks individual customer transactions related to accounts receivable. It is a separate ledger within the company’s accounting system used to manage and organize the outstanding balances owed by customers who have purchased goods or services on credit. Without this subsidiary ledger, a company with many customers would have difficulty tracking customer payments and transactions. Like other subsidiary ledgers, the accounts receivable subsidiary ledger merely provides details of the control account in the general ledger.
They can also use this ledger for debt collection purposes on customers who aren’t making their payments. The Accounts Receivable Ledger maintains information for each customer, such as their name, address, credit terms, and a record of all transactions, including sales, payments, credit memos, and adjustments. It helps businesses monitor the amounts due from each customer, track payment histories, and identify overdue accounts for collection efforts. An accounts receivable subsidiary ledger is an accounting ledger that shows the transaction and payment history of each customer to whom the business extends credit. The balance in each customer account is periodically reconciled with the accounts receivable balance in the general ledger to ensure accuracy. The subsidiary ledger is also commonly referred to as the subledger or subaccount.
Understanding an Accounts Receivable Subsidiary Ledger
In most cases, you’ll find yourself delivering the product or service first, along with an invoice, and receiving payment later. Depending on your credit terms and the customer’s ability to pay, that invoice could be outstanding for a short or extended period. In a standard accounting system, the general ledger only contains one main accounts receivable account. This account equals the sum total of all customer account balances at the end of a period.
This article will guide you through all things AR—from its definition to what to include in your ledger as well as software alternatives to manual AR accounting templates. The total balance of all individual customer accounts in the Accounts Receivable Ledger should equal the balance of the accounts receivable account in the general ledger. This process is called reconciliation and is essential to ensure the accuracy and completeness of the financial records. If your business is catering to a lot of customers, say 50 or more, then whether you should maintain an accounts receivable subsidiary ledger or not is a no-brainer – you definitely should. The general ledger is not able to provide this much detail and so having an accounts receivable subsidiary ledger, or any other subsidiary ledger for that matter, is a real benefit to a company’s operations.
With it, you can also determine which group of customers pay diligently, and who only pay when they are reminded. One of the asset accounts that might need a little bit more attention is the “accounts receivable”. Having a sound and well-functioning accounting system is essential for the success of your business. Sign up for a 14-day free trial, and start simplifying your bookkeeping and accounting practices with Jetpack Workflow. My Accounting Course is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers.