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Sales & Purchases Subsidiary Ledger

Sales & Purchases Subsidiary Ledger

Author: Evan McLaughlin
Description:

In this lesson, the student will learn about subsidiary ledgers for sales and purchases.

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Tutorial

"Sales & Purchases Subsidiary Ledger"

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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[MUSIC PLAYING] Hey, everyone, and welcome to our video today on sales and purchases subsidiary ledger. So what are we discussing today? Well, today we're going to talk about subsidiary ledgers.

We're going to talk about the sales subsidiary ledger and the purchases subsidiary ledger. We're going to discuss what they are, why they're used, and how they're used. So we're going to look at what, why, and how for both the sales subsidiary ledger and purchases subsidiary ledger.

Well, let's start with just with discussing subsidiary ledgers. So what our subsidiary ledgers? It's groups of accounts with similar characteristics, such as sales or purchases, that track the transaction detail and account balances for each individual customer or vendor. So it's a tool to track and collect customer data, as well as vendor data.

So why do we use subsidiary ledgers? Well, it helps us understand our own purchasing habits as a business, as well as the spending habits of our customers. So this is for our frequent vendors, so the places that we purchase goods from the most, as well as our frequent customers. So it helps us understand our purchasing habits from vendors and spending habits from customers.

It can also help with error detection. So if we have this detailed information about individual accounts, it's easier to spot any errors there might be in those individual accounts. And subsidiary ledgers also help us in the streamlining of information. So we can keep unnecessary information out of the general ledger and keep that strictly are financial data and have this additional information in our subsidiary ledger.

Who uses subsidiary ledgers? All businesses with computerized systems, customer information can be stored and tracked. And customers with store credit cards also have their own subsidiary ledger.

So what types of subsidiary ledgers are there? Well, two types we're discussing today are the sales subsidiary ledger and the purchases subsidiary ledger. So let's go ahead and turn our attention to that first one, the sales subsidiary ledger. Let's discuss that a little bit further.

So our sales subsidiary ledger, it's used to track our sale data. So what is that? Sales is the selling of inventory by a merchandising business. So it helps us to track data around the selling of inventory by a merchandising business.

And for the sales subsidiary ledger, there's going to be unique subsidiary ledgers. What does that mean? Well, each customer has their own sales subsidiary ledger. So each customer is going to have a unique subsidiary ledger that has information about that specific customer.

And all the subsidiary ledgers are going to be for those customers that purchase things on account, not cash transactions. So it tracks all the merchandise the customer purchases if they purchase it on account, not cash. Because we won't be able to track any information if they purchase the goods with cash. And the total of all of our sales subsidiary ledgers equal our total credit sales. So because the subsidiaries track information on account, the total of all of our subsidiary ledgers should equal our total credit sales.

So is it just sales that's tracked in the sales subsidiary ledger? Well, we also track information about our sales discounts, so any discounts that a customer receives-- if there's a return allowance for that customer, as well as any payments made by that customer. So the sales subsidiary ledger, really helps us track information about specific customers beyond just the sale itself. We can track these other items, the discount, return allowance, and payments made.

So let's talk about the other subsidiary ledger. So we talked about sales. We just discussed that. Now let's talk about those purchases subsidiary ledger. Let's look at that.

So the purchases subsidiary ledger is used to track purchase data. And that's the buying of inventory for resale to customers or assets, such as supplies or equipment, for cash or credit. OK, so that's what purchases are. And we use the purchases subsidiary ledger to track the data around that.

Similar to the sales subsidiary ledger, there's going to be unique subsidiary ledgers for each vendor. So each vendor has their own purchases subsidiary ledger-- similar to the sales subsidiary ledger-- but it's on the purchases side. So we're going to have vendor information.

And also like the sales subsidiary ledger, our purchases subsidiary ledgers are going to track information about our purchases that we make on account. So any purchases that we make with a vendor on account is going to be tracked in this purchases subsidiary ledger, not the cash transactions. And the total all purchases subsidiary ledgers should equal our total credit purchases. That's a key word there, "credits." So total credit purchases is the total of all of our purchases subsidiary ledgers.

So is just purchases tracked in the purchases subsidiary ledger? Again, similar to that sales subsidiary ledger, we're going to track purchase discounts, if we receive a return and allowance, and also any payments that we make.

So now, we've discussed our sales subsidiary ledger and our purchases subsidiary ledger. And we've looked at some of the similarities and differences between those two. So let's summarize what we talked about today.

In a nutshell, we talked about subsidiary ledgers today. And that'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. The information of the customers is tracked in our sales subsidiary ledger. And the information about the vendors is tracked in our purchases subsidiary ledger.

So we looked at those two types. We looked at purchases subsidiary ledger and our sales subsidiary ledger. I hope everybody enjoyed this video. And I hope to see you next time.

Notes on "Sales & Purchases Subsidiary Ledger"

Terms to Know

Subsidiary ledgers

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.

Sale

The selling of inventory by a merchandising business.

Purchase

The buying of inventory for resale to customers, or assets such as supplies or equipment, for cash or credit.