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Hey, everyone, and welcome to our video, today, on Accounts-Receivable Subsidiary Ledgers. So what are we discussing, today? Well, today, we're going to start with a subsidiary-ledgers review. And then we're going to talk all about the accounts-receivable subsidiary ledger. We're going to talk about what is, why it is used, and how it is used. But let's start, first, with doing a quick review of subsidiary ledgers.
So what are subsidiary ledgers? It's groups of accounts with similar characteristics, such as sales or purchases, that track the transaction detail and account balances of each individual customer or vendor. So it's a tool to track and collect customer data.
So why do we use subsidiary ledgers? Well, it helps us to understand the purchasing habits of our customers. So, for our frequent customers, we can understand what type of purchases they're making-- how often they're making purchases. It helps with error detection. So, if we have this detailed information about individual accounts, it's easier to spot errors. And, of course, it helps us to streamline information, so we keep unnecessary information out of our general ledger.
So now, who uses subsidiary ledgers? Well, it's going to be any organization, any business, with computerized systems, because their customer information can be stored and tracked. So, again, it's going to help them to understand the activity of frequent customers.
So what type of subsidiary ledger are we going to discuss, today? Well, today, we're going to talk about the accounts-receivable subsidiary ledger. So let's go ahead and get started with discussing that.
So our accounts-receivable subsidiary ledger is used to track accounts-receivable data. And accounts receivable is an account that contains the total dollar value of monies owed to the business. So it's a total dollar value of monies that we are to receive, as a business, from our sales.
So now, unique subsidiary ledgers. What does that mean? Well, that means that each customer has their own accounts-receivable subsidiary ledger. So for each customer-- each unique customer-- they're going to have their own accounts-receivable subsidiary ledger. But it's important that the only customers that are going to have an accounts-receivable subsidiary ledger are those that make purchases on account, not cash transactions. So a customer will have their own accounts-receivable subsidiary ledger if they make purchases on account.
And the total of all of our accounts-receivable subsidiary ledgers equals our total accounts receivable. So that's another check that we can make, to verify the accuracy of our information, because all of our accounts-receivable subsidiary ledgers, in aggregate, should equal the total balance that we're showing in our accounts-receivable account.
So is our accounts-receivable subsidiary ledger used to track just sales, to our customers? Well, no; there's other information that's tracked, in there, as well. So it'll tell us information about sales allowance that's given to a customer. So what's a sales allowance? It's the seller's recording of a deduction given to a customer or business, when merchandise is flawed or inferior, and the purchaser chooses to keep the merchandise.
So, if our customer purchases merchandise that's flawed or inferior, and they choose to keep it, we can give them an allowance. So we'll give them a deduction. And that's going to be recorded, in this accounts-receivable subsidiary ledger.
And it's also going to contain information about sales return. So if we issue a sales return. So what is a sales return? It's the seller's recording of a 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 to not keep the merchandise.
So if our customer purchases merchandise from us that's flawed or inferior, and they don't want to keep it, so they bring it back to us, that's a sales return. And we would issue them a credit, if it's a credit sale, or a cash refund, if it was a cash sale.
So our accounts-receivable subsidiary ledger is going to have information about sales allowance and sales return, but it's also going to have information about sales discounts, as well as payments made. And again, if there's any of these items-- sales allowance, sales returns, sales discount, payments made-- they're entered in these separate accounts. So, again, these accounts are tracked separately. And they're also entered in our accounts-receivable subsidiary ledger.
So that's the accounts-receivable subsidiary ledger. There's a lot going on, in that subsidiary ledger. So let's summarize what we talked about, today.
In a nutshell, today was all about the accounts-receivable subsidiary ledger. It tracks money owed to the business, from customers, for sales made on account. So that's the important distinction, there. It's on account, so we're going to track information, for each individual customer, for sales that we make on account. We're also going to track information about returns, allowances, discounts, as well as payments made.
I hope everybody enjoyed this video, and I hope to see you next time.
Terms to Know
The seller’s recording of a deduction given to a customer or business when merchandise is flawed or inferior and the purchaser chooses to keep the merchandise.
The seller’s recording of a 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 to not keep the merchandise.