Definition of Subsidiary Ledger

A subsidiary ledger is a detailed record containing sub-accounts for one main account in the general ledger, used to track specific details for each individual customer, supplier, or item separately. It helps provide detailed information about each element within the main group, such as individual customer balances within the general accounts receivable account, or details of each supplier within the accounts payable account. It is considered an important tool for detailed control and monitoring, and the total of subsidiary account balances must match the balance of the main account in the general ledger.

Difference Between Subsidiary and General Ledger

The general ledger differs from the subsidiary ledger in scope of details and level of aggregation, where the general ledger contains main accounts that show total balances for each group of operations, and is considered the primary source for preparing financial statements due to containing a limited number of aggregated accounts.

In contrast, the subsidiary ledger contains detailed sub-accounts that show details of each customer, supplier, or item individually, helping in detailed monitoring and control despite containing a large number of sub-accounts.

The relationship between them is complementary where the total of subsidiary account balances must equal the balance of the corresponding main account in the general ledger, such as the total balances of all customers in the subsidiary ledger must equal the balance of the accounts receivable account in the general ledger.

Mandatory Nature of Subsidiary Ledger

The subsidiary ledger is not legally mandatory in most accounting systems, but it becomes practically necessary for companies dealing with a large number of customers, suppliers, or items. It is required by good internal control standards to ensure detailed monitoring and accuracy in recording, and is considered an essential condition for effective audit and review.

It also becomes mandatory in some special cases such as public corporations or those subject to oversight by certain regulatory bodies, and may be required by banks as a condition for granting credit facilities. Despite the lack of direct legal obligation, sound accounting practices and professional standards make it a practical necessity that cannot be dispensed with.