 Hello in this lecture we're going to talk about the accounts receivable subsidiary ledger the subsidiary ledger being the ledger that will be backing up the account of accounts receivable showing on the trial balance with 27,000 in it in this case accounts receivable being that accounts that represents what is owed to us. If we were the owner of the company we might ask our accounting department how much money do people owe us. In this case it would be 27,000 would be the reply. Next follow up question would most likely be who owes us that money and have we called them when are we going to get paid that money in order to answer that question. We cannot look at the normal backup balance for all accounts that being the general ledger accounts. If we look at the GL we do get some detail in terms of the activity that has happened. However, that activity is not going to be in terms of who owes us the money it's in terms of date. For every account has the general ledger which does give very good detail but not the detail we need in this case. What we will then need is that information broken out by customer which will be in terms of a subsidiary ledger such as this for example. It might say that Smith owes us 5,000 and Ryan owes us 15,000 and Adams owes us 7,000 for a total of the 27,000. The accounts receivable subsidiary ledger matching the general ledger matching the trial balance which of course would match the balance sheet. It's important to note that this information is all put together using the same data. So the general ledger is often thought of as how we create or put together the information which the end result will be reported in terms of the trial balance. We can put that same data the same general ledger data into the subsidiary ledger that's what we'll do in this process. Also important to note that because of that relationship when we look at the end result meaning the accounts receivable account in terms of the trial balance or the balance sheet. We can sort that data and backup that data in terms of a general ledger or a subsidiary ledger. Let's take a look at some transactions. First transaction is a familiar one. We've seen it before we're going to invoice the client. So we're going to do work on account. Therefore accounts receivable is going to go up the IOU is going to go up with a debit and we're going to credit the income account. I'm going to post out the income accounts. I'm not going to post it to the general ledger account. It would have one but we want to focus in on the GL for the receivable. So if we post out that income first income would increase increasing revenue for that time period when the invoice was issued accounts receivable. We're going to first post to the general ledger. So the general ledger for accounts receivable increasing by that 35,000 which would then increase the total in the accounts receivable GL to 35,000. And of course the same would impact on the trial balance increasing the trial balance to that 35,000. We can see then that after this journal entry we have 35,000 in accounts receivable. We have 35,000 in the general ledger. But we also want to see that information in terms of who owes us the money. And in order to do that we have the subsidiary ledger broken out by client by customer. And we want to post the same information that same 35,000 to the information by customer. So it's the same as the GL except it's a bit more detailed in that it's by customer and then by date. And if we post that out we see the 35,000 is owed by Smith. Now we have a total in the subsidiary ledger 35,000 total on the general ledger of 35,000 as well as in the trial balance and what would be on the balance sheet of that 35,000. That relationship always has to be there. Next transaction we're going to assume that we paid so the customer then paid us we're receiving cash cash is going to increase and we're going to credit the accounts receivable. Not revenue because we didn't do the work we did the work last time we're crediting the receivable so one assets going up one assets going down. I'm going to post the cash first because I don't want to focus on cash we're not going to be looking at the GL for cash I'm just going to say cash is going to be a debit increase in the cash. And then we'll focus on the receivable which we will post to the general ledger. So that's going to bring the balance down we can think of that in two ways one the running balance 35,000 debit minus the new activity which is a credit bringing the bounce down to zero or summing up the debits 35 summing up the credits 35 debits minus the credits would then equal zero same activity same thing would happen to the trial balance bringing the trial balance down to zero. Meaning trial balance now at zero general ledger now at zero subsidiary ledger need that same information so we're just going to post that same information on the GL it's the same thing that is will be impacting the account receivable subsidiary ledger however it will be there by client or customer bringing that balance down we are back down to zero on the subsidiary ledger for AR and the general ledger for AR and the trial balance for AR. New customer we're saying new customer we're going to invoice a new customer we did work invoice goes out that means debit accounts receivable credit the revenue account. We're going to post the revenue first again because we're not really focusing on revenue so although it has a general ledger account like all accounts do we're just going to post it to the trial balance increasing revenue. Then we're going to focus on the receivable we're going to post that out to the GL what would that do to the GL debit to the GL the general ledger for accounts receivable going up by that 14. That would bring the balance up to 14 calculated in one of two ways we can say it's zero running balance was zero before plus a debit bringing it up in the debit direction or we can say the debits 35 plus 14 minus the credits of 35 bring us to the 14. Same thing would happen to the accounts receivable up here so we're saying accounts receivable for the trial balance is going up to 14,000 now we see that we have 14,000 in the trial balance for accounts receivable we see we have 14,000 in the general ledger for accounts receivable. And we need to post that same 14,000 of this same 14,000 needs to be posted to the subsidiary ledger but by customer in this case and that customer being Adams here so Adams is going up by that 14. Now we have zero plus 14 plus zero brings us to that same 14 the subsidiary ledger time out to the general ledger time out to the trial balance. Then we're going to have another invoice we're invoicing another customer. Same thing we did work invoicing the customer accounts receivable is going to go up with the debit of that 27,000. We're going to credit the revenue. Again I'm going to post the revenue first not to the general ledger although it does have a general ledger account but we're not focusing on the GL for this particular account but revenue would then increase in the credit direction. Now we'll post out the receivable it's going to be another debit to the receivable in this case increase in the receivable we can think of that two ways the 14 prior balance plus the 27,000 current activity brings it to the 47 or 35,000 debit plus 14,000 debit plus 27,000 debit that total minus the 35,000 credit total would also bring us to that 41,000 that's the T account format and this is the running balance format. If we post it out to the trial balance we see the same activity the 14 plus the 27 bringing us to that 41,000 we can see that then the 41,000 on the trial balance is equivalent to the general ledger account for account receivable 41,000. We need to post that same 27,000 to the accounts receivable subsidiary ledger but by a customer that customer bringing Ryan in this case bringing the balance up to 27,000. Now we have a balance of 41 total including the 14,000 Adams zero for Smith because Smith paid off the balance and 27,000 for Ryan point being that subsidiary ledger is the same data in essence as the general ledger. It's just posted in a bit more detailed of a fashion. We want to be able to know that relationship so that we can one build the trial balance and also we need to know it so that if we are using software, we know that we can sort this data one by GL by date, but also by customer and then date. And that's also why much of the software when we work with accounts receivable will require a customer every time we post to the receivable that the software saying hey, I can't make a subsidiary ledger unless you assign a customer. Therefore, we're not going to let you post to the to the receivable account unless you assign a customer.