Leveraging Subsidiary Ledgers with Dynamics GP

Back in the days before computer processed accounting systems, accounting records would be kept by hand, on paper, and in ledger books. Multiple ledger books would be used, with each ledger book retaining the details and transactions about one type of account. For example, the Accounts Receivable subsidiary ledger would include the name of each customer, every transaction that the customer made (such as invoices and payments), and the total amount owed by the customer.

Then the summary information from that ledger, along with the others would be entered in the general ledger on a periodic basis, such as a monthly basis. The separate, or subsidiary ledgers, allowed for the ability to have detailed information, in an organized way that could then be summarized at the general ledger level. The subsidiary ledgers made it possible to keep track of the detailed information, such as the invoices and payments made to a vendor, without clogging up the general ledger. If they had kept all the detailed information for all the financial transactions in one ledger, it would have been next to impossible to look up or report on any detailed information.

While today we no longer have to enter our accounting information and transactions by hand into various ledger books, the concept and use of subsidiary ledgers still has a place in our current accounting systems. The use of subsidiary ledgers is one of the primary distinguishing differences between lower level accounting systems such as QuickBooks, and mid-market and enterprise systems such as Microsoft Dynamics GP.

The four main subsidiary ledgers in mid-level and enterprise accounting systems are the Checkbook, Accounts Receivable, Accounts Payable, and Inventory. Additionally, companies may maintain Project Accounting and Manufacturing Work Order subsidiary ledgers.Within each of these subsidiary ledgers, there is the capability to record detailed information that can then flow through to a general ledger in a summarized format.

The inventory subsidiary ledger allows you to track the cost, sales price, vendor information, purchase history, and more all in one location. Because this subsidiary ledger is separate from the general ledger, you can give your Dynamics GP users access to do their part in inventory, without giving them access to work in the general ledger.

Accounts Payable allows you to track all invoices and payments made to a vendor, as well as vendor information. Because all of the information is in one place in the subsidiary ledger, it allows for easier reporting on just payables information, without needing to wade through all the information in the general ledger. Accounts Payable also allows for more detailed information about each transaction within the subsidiary ledger.

Accounts receivable works in a similar manner to the accounts payable subsidiary ledger. It allows tracking of detailed transaction information for customers, without entering that information in the general ledger.

The checkbook subsidiary ledger contains information from the payables and receivables subsidiary ledgers, as well as its own transactions. The checks to vendors that are kept in payables flow through to the checkbook, and then to the general ledger. With receivables, the receipts from customers are able to be grouped into deposits, and appear in the checkbook as well. This allows all transactions that affect the checkbook to be reported in one place. In addition to transactions coming from payables and receivables, the checkbook can also include withdrawals, miscellaneous checks, and receipts. Having all the transactions that affect the checkbook in one place allows you to easily reconcile the transactions that are entered in the accounting system checkbook to the bank statement. Having the subsidiary ledgers separate from the general ledger allows for better separation of duties, as well as better security regarding sensitive financial information. This way someone who only needs to enter inventory related transactions doesn’t need to have the capability to see sensitive financial information in order to do their work. The same principle applies to the other subsidiary ledgers.

That said, having the subsidiary ledgers separate from the general ledger creates the ability for the subsidiary ledgers to get out of balance with the general ledger. This means that it is possible (typically through data entry error) for the receivables subsidiary ledger to include transactions that are not in the general ledger receivable account. Or it is possible to have transactions in the general ledger account but not in the subsidiary ledger. This is why it is important when using mid-level or enterprise accounting systems to reconcile the subsidiary ledgers to the general ledger on a regular basis.For small to mid-size companies this is typically monthly, while enterprises may reconcile weekly or even daily. This way any discrepancies can be discovered and corrected in a timely manner. Other settings within the accounting system can prevent entering transactions directly in the general ledger for accounts associated with subsidiary ledgers. For example, in Microsoft Dynamics GP there is a checkbox in account setup that restricts transactions from being entered in the general ledger and bypassing the subsidiary ledger. This reduces the most common reason for discrepancy between a subsidiary ledger and the general ledger – a transaction which was entered directly into the general ledger without utilizing the subsidiary ledger.

When transitioning to a mid-level or enterprise level accounting system, it can take some time to adjust to the use of subsidiary legers. Don’t let that stop you. The additional flexibility and capability of this type of accounting is well worth the adjustment. Contact Syvantis by phone at 800-450-8908 or check out our website at www.syvantis.com to learn more about Microsoft Dynamics GP.

by Syvantis Technologies