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“In this lecture we re gonna talk about the accounts payable of subsidiary ledger accounts accounts payable subsidiary ledger will be backing up the accounts payable account on the trial or the balance sheet. As we can see in the example here. We have a balance of one thousand six hundred and forty in accounts payable. If an owner asks the question of how much money do we owe to vendors.
The answer would then be one thousand six forty which we can see on the balance sheet or the trial balance. But the next question that will follow will be who do we owe that money to and how do is it which of these vendors should we be paying first in order to answer that question we may try to go to the detailed account. Which is the general ledger typically every account is backed up by the general ledger. We can see that we have the same balance here and we can see that we have activity.
However. The activity is in order by date and that s not really helpful for us to determine who exactly we still owe at this point in time in order to determine who we are we need to organize this information not just by date but by vendor so that will be the subsidiary ledger for example we might owe office depot six hundred and eighty and we might owe ann s food six hundred and forty we might owe al s auto three hundred and twenty that would then sum up to the one thousand six forty that is on the general ledger and that is on the trial balance and which would be on the balance sheet. And this gives us some indication of who we owe and gives us an idea of how we should then go about making the payments who should we make these payments to let s look at some transactions to see how this works. Let s say we got a bill here we re going to receive a bill.
We re gonna record the transaction for of a bill and the bill was for supplies we re gonna debit supplies and we will then credit accounts payable we have not yet paid the cash for the bill. We re just recording the bill. I m gonna record the supplies first i m just gonna record it to the trial balance to see the activity on the trial balance not to the general ledger for supplies. Although supplies of course would have a gl account.
But we want to focus in on accounts payable. So the supplies would then increase. So we d have an increase in supplies. Then the accounts payable.
I m going to post. It to the general ledger note..
The general ledger is in order by the order of transactions that are happening here increase in the balance to that six hundred eighty that 680 would also then be reflected in the trial balance therefore. We would then have the 680 on the trial balance on the balance sheet. And then it would also be on the general ledger. But we also want to track that information by vendor who is it that we owe the 680 to in this case office depot increasing office depot subsidiary ledger account in terms of accounts payable now if we add up all the subsidiary ledger accounts.
The people we all we only owe office depot it adds up to that 680 the subsidiary ledger ties out to the general ledger ties out to the trammels would tie out to the balance sheet. As well note that the subsidiary ledger is really just posting the same information. That is being posted to the general ledger. But it will be by vendor if we have another transaction in which we re gonna pay off the vendor in this case.
Then we know that the journal entry would say that cash is going down with a credit and we would then debit the accounts payable. Reducing the accounts payable i m going to post the cast just because we re not focusing on cash. We re focusing on accounts payable so cash would obviously go down. We re thinking of post.
The accounts payable to the general ledger. So we re gonna show the detail decrease in the general ledger that would bring the balance down to zero. We can do that two ways we can say it s the running balance of a credit of 680 minus the debit or we can add up the debit 680 out of the credit 680 and subtract them either way we get to that zero. Which then would appear on the trial balance as well therefore we can see that they trial balance matches.
The general ledger. We also want to see that information however in terms of vendor that s what the accounts payable subsidiary ledger will do in this case we re going to say that this transaction is reducing the amount for office depot bringing that balance down. We re back down to 0 in the subsidiary ledger. The general ledger and the trial balance as well as the balance sheet.
Let s see we have another bill. So we got another bill in this case..
The bill is for auto service. So we re going to debit auto expense and we re going to credit accounts payable. We have not yet paid for it i m gonna record the auto expense first because we re focusing on the payable. So i m just going to record the expense directly to the trial balance that would of course increase.
The expense for auto works then the accounts payable we want to focus in on we re gonna record to that general ledger account general ledger account goes back up with a credit. And that would increase the balance again we could do this by saying. It s the prior balance. The running balance of zero.
Plus. The credit bringing us up to a credit balance of 320 or we can add up the debits 680 out of the credit. 680 plus. 320.
Subtract. Them. And see that the credits are winning by the 320. That would of course also be on the trial balanced at 320 therefore the trial balance on accounts.
Payable would match. The general ledger and we would need to record that also however in terms of who do we owe what s the vendor that s where the accounts payable subsidiary ledger comes in in this case we allow our dough that 320 increase in the 324 al s auto. If we add up all the people in the subsidiary ledger. All the vendors in the subsidiary ledger.
We then get to that 320 subsidiary ledger match in general ledger matching the trial balance knicks transaction. Let s say we got another bill..
We re gonna record another bill for the 700 that s 700 bean for entertainment meals and entertainment. We re gonna increase the 700 with a debit and we re gonna credit the accounts payable we haven t yet paid for it again we got another bill that we are then entering. We re going to record the entertainment first because we re not focusing on that we re focusing on minute counts. Available that s going to increase the expense then we re going to record the accounts payable to the gl.
So. The gl is then gonna increase again by the 700 that s gonna increase the balance to 1020 can be calculated. Two ways. One.
It could be the balance before 320 plus. 700. Bringing us to 1020 or. We can add up the debits.
680. Add up the credits. 680. Plus.
320. Plus. 700. Subtract.
Them out. And see that the credits are winning by 1020 dollars..
That would of course also be reflected on the trial balance therefore. We can see that once again. The trial balance matches. The general ledger.
But we also want to see that in terms of the subsidiary ledgers of the subsidiary ledger by vendor would then show that ann s food has been increased by that 7 700. Therefore if we add up the balances of 0 700 and 3 20. We see that we have a balance of the 1020 in the subsidiary ledger as well as the general ledger. As well as the trial balance.
So. The subsidiary ledger is going to be basically the in the same information as the general ledger. It s going to be broken out in a different way by vendor first and then by date if we re using computerized systems. Oftentimes this will happen at the same point in time in a computerized system will often not let us post to the accounts.
Payable account. Unless. We assign a vendor because the system. Saying.
Hey. If you want me to post to the accounts payable account. I need a vendor. So we can create the subsidiary ledger by vendor as we do this ” .
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