Accounts Payable Subsidiary Ledger
An accounting ledger of a business that shows its expenses, transaction history, and amounts owed to each supplier. The ledger extends credit from a supplier and gives the business time to pay for the stock supplied.
Accounts Payable Subsidiary Ledger Details
The subsidiary ledger is a job sheet for total payables owed to suppliers. The aforementioned general ledger is a central archive for tracking all accounting information transferred from subsidiary ledgers such as accounts payable, accounts receivable, fixed assets, or cash management. Accounts payable subsidiary ledger is a tool that is vital to ensure undisturbed functioning of a business by taking control of the timely payment of business debts given on credit by suppliers.
The general ledger summarizes all the business's sub-ledger totals in its regular running and operation by assigning them into liabilities, support, and equity accounts. The accounts payable summed up amount is recorded under current liabilities in the balance sheet, which comprises other short-term debts. Suppose these debts are settled within the time-frame agreed. In that case, there is an excellent possibility of improving relations between suppliers and your business. There is still an interrupted business flow because a business can acquire supplies even without paying immediately.
In our quest to understand the accounts payable subsidiary ledger, we realize that reports payable sub-ledgers help narrow down to individual payables owed to the business's supply firms as listed in the general catalog. Internal accounting controls in a company, such as expenses, are efficiently done with the accounts payable subsidiary ledger's aid. Business management minimizes errors during reporting by double-checking individual accounts with total amounts published on the general ledger.
Example of an Accounts Payable Subsidiary Ledger
Let's imagine a business or firm such as the Tesla Motor Company. The motor company can decide to have a general ledger account that can balance up to $120 million. Suppose Tesla management demands to know which suppliers are owed with the amounts owed by each. In that case, this information can be derived from the accounts payable subsidiary ledger, which will show the following:
- Supplier W is owed $20 million for aluminum.
- Supplier X is owed $60 million for copper, nickel lithium, and related minerals.
- Supplier Y is owed $30 million for electric cables.
- Supplier Z is owed $10 million for tires.
The whole manufacturing process or mass production requires raw material, energy, and fuel to be successful. Interestingly, these commodities are consumed in massive amounts, which consequently means making massive cash purchases. Since this vast purchasing power is cumbersome to the manufacturers, these items are acquired on credit. The period will reflect accounts payable between purchasing the commodities and when a business makes a payment.
Transportation and logistics is also an excellent example of an accounts payable subsidiary ledger in the event of needed raw materials to undergo shipment from the supplier's warehouse to the location of manufacture. These services, like warehouse storage, are not in all cases settled or paid for immediately. A business will use accounts payable until the services are paid for.
History of Accounts Payable Subsidiary Ledger
Business processes, transactions, and communications have transformed a great deal over the past several years. For instance, the accounts payable sub-ledger primary purpose in business has completely changed. In the 1980s, firms handled all their accounts payable entirely on paper, which meant communication from one firm to another had to be physical, and businesses stored information on paper files.
In the 1990s, business management software emerged that made companies think of redesigning their business processes. This software lowered performance costs alongside management costs because most of the businesses' entities and accounts payable were centralized, which improved control.
In the golden-age or rather the new millennium, a lot has changed. Accounts payable are no longer treated as separate entities because they became integrated once created to improve automation efficiency. The fact that this automation allows for customization, it is easier to work with. It also provides a cloud-based feature with means information can never be lost easily and can be retrieved whenever needed; this aids in implementation.