Question

Identify the basic concepts of an accounting information system and describe the nature and purpose of a subsidiary ledger.

Answer 1

In any business organisation, numerous financial transactions occur on a daily basis. It is important to maintain records of all these financial transactions because the reports on these data are used to take important business decisions. An accounting information system is the tools which helps to maintain all these records and provide all the necessary summarised and customized reports to the management for better decision making and formulating internal control policies. It is used to maintain subsidiary and general ledger and prepare reports like financial statement, cash flow statement, fund flow statement, ratio analysis, etc.

Subsidiary ledgers refers to the individual accounts comprising the general ledger. For example, Accounts Payable is the general ledger under which we have the accounts of each supplier like Mr X, Mr Y or Furniture is a General Ledger under which we have the subsidiary ledgers like table, chairs, wardrobe, sofa, etc. Subsidiary ledger provides the details of the transactions to support the general ledger balance. The sum total of all subsidiary ledgers is equal to the general ledger.