What is an Accounts Payable Ledger?
Definition: The accounts payable ledger, also called the creditors ledger, is a subsidiary ledger that lists all of the vendors and suppliers that a company owes along with their account balances and details. In other words, the A/P ledger is a summary of all the current and outstanding accounts payable. This is a list that is not detailed in the general ledger of all the vendors and other companies that are owed money.
An accounts payable ledger contains the detail for all invoices received from suppliers. This ledger is used as a subsidiary ledger, from which summary-level information is periodically posted to the general ledger. Having a separate accounts payable ledger keeps a large amount of detailed payables transactions from cluttering up the general ledger.
The ledger tracks the specific payable information for each invoice, which includes the following:
- Invoice number
- Invoice date
- Supplier name
- Amount payable
The general ledger account balance for accounts payable is compared to the ending accounts payable ledger balance to ensure that the two match; this comparison is done as part of the period-end closing process.
What Does Accounts Payable Ledger Mean?
In a typical accounting system, there is only on main accounts payable account in the general ledger. This keeps the ledger clean and organized without being cluttered with multiple accounts. The only problem is that companies rarely buy goods on account from a single vendor. Thus, they need to record multiple accounts to keep track of the money owed to each vendor.
That’s where the subsidiary ledger system comes into play. A separate subsidiary ledger is set up to track the details of each vendor account, so the general ledger doesn’t have to make tens or even hundreds of accounts payable accounts.
The accounts payable ledger does just this. It tracks the amounts owed to different vendors along with the dates, order quantities, and other purchase information without cluttering up the general ledger with all of this detail. The general ledger simply pulls total balances from the accounts payable ledger and reports it in one accounts payable account.
The A/P ledger can be used to provide current information about vendor balances. It also acts as an internal control. Bookkeepers and managers can compare the subsidiary balance with the general ledger balance to help prevention errors. It also acts as an internal control by segregating they duties of employees. The employee who records the transactions on a daily basis is not the person who checks for errors.
Advantages of Accounts Payable Ledger
- This ledger can offer a quick snapshot of the current vendor balances.
- It’s useful as a model for internal control and audit purpose
- Managers and book-keepers can compare the subsidiary balance with the general ledger balance for the prevention of errors.
- It further helps in the segregation of duties amongst employees. There would be a separate employee recording the transaction and another one checking for potential errors. This will ensure efficiency and strong internal control.
- This information can be used for creating an aging report which will further show the name of the vendor with individual overdue notices. It also highlights the outstanding amount for every invoice that has gone unpaid. The changes in Cash flow caused would also get highlighted.
- Additionally, if there as an increase in the number of late invoices, it may highlight problems with the accounts receivable collections. This points out that customers are taking a longer time than usual to pay which may require immediate attention.