What is the purpose of a subsidiary ledger and its relation to the general ledger?

• A. Replaces the general ledger for small businesses.
• B. Provides detailed records (per customer/supplier) that feed into control accounts in the general ledger.
• C. Is used only for tax reporting and never ties to the general ledger.
• D. Is a backup copy of the general ledger.

Answer: (B)

The main point is that subsidiary ledgers provide detailed, per-account records that feed into the general ledger’s totals. In practice, you keep detailed lists for each customer in the accounts receivable sub-ledger and for each supplier in the accounts payable sub-ledger. The big general ledger holds the summary or control accounts, such as Accounts Receivable and Accounts Payable, which reflect the combined totals from those detailed sub-ledgers.

This arrangement lets you see individual customer or supplier activity while still reporting at a high level in the general ledger. It also enables internal checks: the total of all the sub-ledger balances should match the balance in the corresponding control account in the general ledger. If they don’t align, it signals that there’s an error to investigate.

Subsidiary ledgers are not replacements for the general ledger, not backups, and not used only for tax reporting. They exist to provide detailed transactional records that support the general ledger’s summarized figures.