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Accounts Payable Subsidiary Ledgers

Accounts Payable Subsidiary Ledgers

Author: Evan McLaughlin
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In this tutorial, the student will learn about accounts payable subsidiary ledgers.

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Tutorial

"Accounts Payable Subsidiary Ledgers"

Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792

Video Transcription

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Hey, everyone. And welcome to our video today accounts payable subsidiary ledgers. So what are we discussing today? Well, today we're going to do a review of subsidiary ledgers, and then we're going to talk about the accounts payable subsidiary ledger. We're going to look at what it is, why it's used, and how it's used. So let's get started with a quick review of subsidiary ledgers.

So what are subsidiary ledgers? They're groups of accounts with similar characteristics, such as sales or purchases, the track the transaction detail and account balances of each individual customer or vendor. So it's a tool to track and collect vendor or supplier data. And why are they used? Well, to understand our purchasing habits. So the company, understand our purchasing habits from our frequent vendors and suppliers. So it's important to understand those. It helps us with error detection. So if we have detailed information about individual accounts, it's easier to spot errors. And of course it helps us to streamline information. So we keep unnecessary details out of our general ledger.

So who uses accounts payable subsidiary ledgers? Well, any business that has computerized systems. So the supplier information can be tracked and stored. Now, what type of subsidiary ledger are we discussing today? Well, we're going to discuss the accounts payable subsidiary ledger. So let's go ahead and get started with that.

So our accounts payable subsidiary ledger, it's used to track accounts payable data. And accounts payable is an account that contains the total dollar value of moneys owed to suppliers for credit purchases. So now, unique subsidiary ledgers, what does that mean? That means that each supplier has their own accounts payable subsidiary ledger. So we're going to have a different accounts payable subsidiary ledger for each supplier. And, again, we use the accounts payable subsidiary ledger for purchases made on account, not cash transactions. So it's only going to track all the purchases that were made on account. And now, the total of all of our accounts payable subsidiary ledgers equals our total accounts payable. So, again, that's another check that we can do. So the total of all of our accounts payable subsidiary ledgers will equal our total accounts payable.

So is it just purchases the gets recorded to our accounts payable subsidiary ledger? Well, no, there's other items that get recorded here as well. One of those things is purchase return. So what's a purchase return? It's credit, if credit sale, or cash refund, if cash sale, given to a customer or business when merchandise purchased is flawed or inferior and the customer or business chooses not to keep the merchandise. So a purchase return is when we don't keep the merchandise and will receive either a credit or a cash refund. So a purchase return is also contained within the accounts payable subsidiary ledger.

We also purchase allowance. What's a purchase allowance? It's a deduction given to a customer or business when merchandise purchased is flawed or inferior and the customer or business chooses to keep the merchandise. So if we keep the merchandise, and it's flawed or inferior, we'll be given an allowance. So it's a deduction that we'll receive from our supplier. That's also tracked in our accounts payable subsidiary ledger. And then we also keep information about purchase discounts, as well as any payments that are made. So if these items take place, they're entered into these separate accounts. So they are accounted for separately. And they're also entered in our accounts payable subsidiary ledger.

So that's the accounts payable subsidiary ledger. A lot going on with that subsidiary ledger. So let's summarize what we talked about today. In a nutshell, we talked about the accounts payable subsidiary ledger. It tracks money owed to individual suppliers for purchases made on account. That's the important phrase there: purchases made on account. So any purchase that we make on account is going to be tracked in an accounts payable subsidiary ledger for that specific supplier. We can also track returns within that subsidiary ledger, allowances, discounts, and payments made. I hope everybody enjoyed this video, and I hope to see you next time.

Notes on "Accounts Payable Subsidiary Ledgers"

Terms to Know

Purchase Return

Credit, if credit sale, or cash refund, if cash sale, given to a customer or business when merchandise purchased is flawed or inferior and the customer or business chooses not to keep the merchandise.

Purchase Allowance

A deduction given to a customer or business when merchandise purchased is flawed or inferior and the customer or business chooses to keep the merchandise.