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when the company wants to include the specifi c debit and credit entries in
reports. We discuss reporting at the end of this chapter. In the next section we
shift our focus to subledger and reconciliation accounts.

SUBSIDIARY LEDGERS AND RECONCILIATION ACCOUNTS
Some fi nancial data are not directly maintained in the general ledger. For
example, customer accounts, which track the amounts customers owe and
the payments they have made, are maintained separately for each customer.
Although it is necessary to track sales and payments separately for each cus-
tomer, it is not necessary to include each customer account in the general led-
ger. Similarly, data about each vendor and asset, such as an automobile, are
maintained in separate accounts. Vendor accounts track purchases from and
payments made to them. Asset accounts are used to track the purchase price
as well as increases and decreases in the asset’s value over time. Such accounts
are maintained in subsidiary ledgers or subledgers, and they are not part
of the general ledger.
Although customer and vendor accounts are not part of the general ledger,
the data in these accounts must be refl ected in the general ledger. Companies
accomplish this task by posting the data from subledger accounts into
special accounts in the general ledger called reconciliation accounts.
Reconciliation accounts are general ledger accounts that consolidate data
from a group of related subledger accounts, such as customers and vendors.
The reconciliation account for customers is accounts receivable, and the rec-
onciliation account for vendors is accounts payable. Because the general led-
ger can include multiple reconciliation accounts, it is necessary to indicate
which subledger each reconciliation account is associated with. This informa-
tion appears in the reconciliation account for account type fi eld in the gen-
eral ledger account master data. These concepts are related to the accounts
receivable and payable accounting processes introduced at the beginning
of the chapter. These processes will be explained in greater detail later
in this chapter.
One special characteristic of reconciliation accounts is that it is not
possible to post data directly into them. Rather, data must be posted to sub-
ledger accounts, at which point they are automatically posted to the corre-
sponding reconciliation account as well. Thus, when a company sells products
or services to a customer on credit, the amount owed is noted in the custom-
er’s subledger account and is also posted to the corresponding reconciliation
account (accounts receivable). Likewise, when the company owes money to
a vendor for purchases it made on credit, this amount is noted in the ven-
dor’s subledger account and is simultaneously posted to the corresponding
reconciliation account (accounts payable). The balance in the reconcilia-
tion account (e.g., accounts receivable and accounts payable) is the sum of
the postings in the related subledger accounts (e.g., customers and vendors,
respectively).
We will consider subledger and reconciliation accounts in greater
detail in the process section of this chapter. We now turn our attention to
the key concepts involved in fi nancial accounting, beginning with accounting
documents.

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