Subsidiary AccountDefined along with Examples

Written By:
Adiste Mae

What is a Subsidiary Account?

To understand what a  Subsidiary Account is, it is helpful to understand what makes up the financial reports of a company.

The financial report is made up of general ledger accounts that are made of subsidiary ledgers.

These subsidiary ledgers have control accounts and the detailed transactions within these control accounts are called subsidiary accounts.

A Subsidiary Account therefore, is an account that makes up the subsidiary ledgers of a company.

Essentially, the subsidiary accounts are important tracking accounts to be able to see the detailed transactions recorded, especially those under the Accounts Receivable and Accounts Payable accounts.

The subsidiary account summarizes the control account typically used for accounts receivable and accounts payable due to the volume of transactions recorded under these two.

Under the general ledger, there are summary totals of control accounts that provide the highest level of information while the lowest level of information fed into the general ledger is from the subsidiary account.

When the company closes its books monthly, the general ledger is reconciled with the subsidiary account to make sure that all the information is fed into the control accounts.

Examples of Subsidiary Accounts

Because Subsidiary Accounts are most used for transactions involving Accounts Receivable and Accounts Payable, the most common examples are the vendor records and customers records.

Vendor Records

Vendor Records show the detailed transactions for each supplier.

The details make up for the total shown in the control account of accounts payable as can be seen in the general ledger.

Vendor Records are the source of information regarding the amount that a company still owes its suppliers and also to avoid any type of overpayment in the future.

When a company has a lot of vendors, it makes sense to create individual vendor accounts for all of its suppliers to track their activities individually.

For example, an Accounts Payable account will have subledger accounts for specific vendors as shown below:

The four different suppliers show the total amount still outstanding to be paid and will further show the details of all the transactions specific to each of their accounts.

Customer Records

Under the Accounts Receivable general ledger, a customer record is a subsidiary account that provides details for each customer that a company has ever had.

For companies that have regular customers, keeping a customer record makes sense especially if they want to capture important data for analysis purposes.

Example of the Accounts Receivable Ledger that will show customer records are as follows:

Accounts Receivable is the general ledger account and its subaccounts are for the customer records of John, Mark, Mike and Jane.

Based on the above, the customer records show the balances for each customer.

When each customer record is opened, it will show detailed transactions for each including each invoice sent out and its related payments.