What is a subsidiary ledger?

What is a subsidiary ledger?

• A. A summary ledger of all departments
• B. A detailed ledger that breaks down a specific account
• C. A record of cash transactions for a period
• D. A ledger used only for payments

Answer: (B)

A subsidiary ledger is a detailed ledger that breaks down a specific account, allowing for more granular tracking of financial transactions. It serves to provide detailed information that supports the general ledger accounts. For example, if a company has a general ledger account for accounts receivable, the subsidiary ledger for accounts receivable would include detailed records of each individual customer's transactions. This structure is important because it enhances the clarity and accuracy of financial records, making it easier to manage and review specific transactions without cluttering the main general ledger with excessive detail. The subsidiary ledger aids in reconciliation and can improve the efficiency of financial reporting. Other options describe different ledger types or functions but do not accurately capture the essence of what a subsidiary ledger represents. A summary ledger focuses on an aggregate view rather than detailed information, a record of cash transactions pertains to a specific type of transaction rather than the detailed breakdown of an account, and a ledger used only for payments does not reflect the broader purpose of tracking detailed transaction data across all relevant activities related to a specific account.

A subsidiary ledger is a detailed ledger that breaks down a specific account, allowing for more granular tracking of financial transactions. It serves to provide detailed information that supports the general ledger accounts. For example, if a company has a general ledger account for accounts receivable, the subsidiary ledger for accounts receivable would include detailed records of each individual customer's transactions.

This structure is important because it enhances the clarity and accuracy of financial records, making it easier to manage and review specific transactions without cluttering the main general ledger with excessive detail. The subsidiary ledger aids in reconciliation and can improve the efficiency of financial reporting.

Other options describe different ledger types or functions but do not accurately capture the essence of what a subsidiary ledger represents. A summary ledger focuses on an aggregate view rather than detailed information, a record of cash transactions pertains to a specific type of transaction rather than the detailed breakdown of an account, and a ledger used only for payments does not reflect the broader purpose of tracking detailed transaction data across all relevant activities related to a specific account.