A subsidiary ledger contains the details to support a general ledger control account. For instance, the subsidiary ledger for accounts receivable contains all of the information on each of the credit sales to customers, each customer's remittance, return of merchandise, discounts, and so on. With these details in the subsidiary ledger, the Accounts Receivable account in the general ledger can be a control account. As a control account, it will simply report the aggregate amounts of the accounts receivable activity.
By having the details of the accounts receivable activity in a subsidiary ledger, a company can better control its financial information. For example, the credit manager and others in the credit department of a company will have access to any and all of the credit sales information through the subsidiary ledger without having access to any other account in the company's general ledger.
In job order costing systems, the job cost sheets or records serve as the subsidiary ledger containing the detail for the general ledger account Work in Process. The Work in Process account is now a control account containing aggregate amounts for direct materials, direct labor, factory overhead applied, transfers to finished goods, etc. Manufacturing personnel will have full access to the job cost sheets without gaining access to other accounts in the general ledger.
Since companies are integrating accounting records with their other information into one database, I assume there will be less use of the term subsidiary ledgers in the future. There will likely be a report generated to provide the information formerly contained in the subsidiary ledger.
Journals are referred to as books of original entry. Accounting entries are recorded in a journal in order by date. A company might use special journals (sales, purchases, cash disbursements, cash receipts), or its accounting software will generate entries for routine transactions, but there will always be a general journal in which to record nonroutine transactions, such as depreciation, bad debts, sale of an asset, etc. In the general journal you must enter the account to be debited and the account to be credited and the amounts. Once a transaction is recorded in the general journal, the amounts are then posted to the appropriate accounts.
Accounts (such as Cash, Accounts Receivable, Equipment, Accumulated Depreciation, Accounts Payable, Sales, Telephone Expense, etc.) are contained in the general ledger.
To recap...the general ledger houses the company's accounts. The general journal is a place to first record an entry before it gets posted to the appropriate accounts.
What is a special journal?
Special journal meaning: A special journal (also known as a specialized journal) is useful in a manual accounting or bookkeeping system to reduce the tedious task of recording both the debit and credit general ledger account names and amounts in a general journal.
For example, one special journal is the sales journal which is used exclusively for a company’s sales of merchandise to customers that are allowed to pay at a future date. The sales journal will have only one column in which to enter the amount of each sales invoice. At the end of the month the total of the column is debited to Accounts Receivable and credited to Sales. Throughout the month, the individual sales invoices will be posted to each customer’s record found in the company’s subsidiary ledger for Accounts Receivable.
The benefits of using a special journal instead of the general journal for the repetitive transactions have been eliminated with today’s inexpensive yet powerful accounting software. For example, when a sales invoice is prepared by using accounting software, both the general ledger and subsidiary accounts will be updated instantly and accurately.
Special journal examples: The following are examples of special journals that are more efficient than recording transactions in the general journal used in a manual accounting system:
· Cash disbursement journal for recording checks written.
· Cash receipts journal for recording money received.
· Sales journal for recording sales on credit. (Cash sales are recorded in the cash receipts journal.)
· Purchases journal for recording purchases on credit of goods to be resold. (Cash purchases are recorded in the cash disbursement journal. Purchases of items such as equipment are recorded in the general journal.)
What is a journal entry?
In manual accounting or bookkeeping systems, business transactions are first recorded in a journal...hence the term journal entry.
A manual journal entry that is recorded in a company's general journal will consist of the following:
· the appropriate date
· the amount(s) and account(s) that will be debited
· the amount(s) and account(s) that will be credited
· a short description/memo
· a reference such as a check number
These journalized amounts (which will appear in the journal in order by date) are then posted to the accounts in the general ledger.
Today, computerized accounting systems will automatically record most of the business transactions into the general ledger accounts immediately after the software prepares the sales invoices, issues checks to creditors, processes receipts from customers, etc. The result is we will not see journal entries for most of the business transactions.
However, we will need to process some journal entries in order to record transfers between bank accounts and to record adjusting entries. For example, it is likely that at the end of each month there will be a journal entry to record depreciation. (This will include a debit to Depreciation Expense and a credit to Accumulated Depreciation.) In addition, there will likely be a need for journal entry to accrue interest on a bank loan. (This will include a debit to Interest Expense and a credit to Interest Payable.)
In accounting and bookkeeping, a journal is a record of financial transactions in order by date. A journal is often defined as the book of original entry. The definition was more appropriate when transactions were written in a journal prior to manually posting them to the accounts in the general ledger or subsidiary ledger. Manual systems usually had a variety of journals such as a sales journal, purchases journal, cash receipts journal, cash disbursements journal, and a general journal.
With today's computerized bookkeeping and accounting, it is likely to find only a general journal in which adjusting entries and unique financial transactions are entered. The recording and posting of most transactions will occur automatically when sales and vendor invoice information is entered, checks are written, etc. In other words, accounting software has eliminated the need to first record routine transactions into a journal.
A memorandum entry is a short message entered into the general journal and also entered into a general ledger account. It is not a complete journal entry because it does not contain debit and credit amounts.
An example of a memorandum
entry might be the following:
"On May 1, 2013 a 2-for-1 stock split was declared for the common
stockholders of record as of the end of the day May 22, 2013. The stock split
will result in the number of issued and outstanding shares of common shares
increasing from 200,000 shares to 400,000 shares."
Since a stock split does not change the balance in the Common Stock account, a complete journal entry was not required. The memorandum entry merely notes for future reference that the number of shares of stock has changed.
To reclassify an amount often means to move an amount from one general ledger account to another general ledger account.
To illustrate, let's assume that an invoice for $900 was recorded in the account Advertising Expenses. Upon review, the advertising manager informs the accountant that the amount should have been recorded in the account Marketing Supplies. If the accountant uses a journal entry to move the amount, the entry's description might be: To reclassify $900 from Advertising Expense to Marketing Supplies.
In this illustration, the phrase to reclassify an amount has a gentler tone than the phrase to correct an account coding error.