The Sales Ledger is a type of Subsidiary Ledger or alternatively, a Memorandum Account. These terms mean that the Sales Ledger provides an analysis of the General Ledger’s Sales Ledger Control Account.
The Sales Ledger Control Account
The Sales Ledger Control Account (“SLCA”) is one of the many ledger accounts found in the General Ledger and is used to record:
- Any transaction that affects the amount of money owed to the business by its customers (e.g. sales made on credit, credit notes issued to customers, receipts from customers and so on); and
- The total amount the customers owe to the business
The problem with the SLCA is that it does not provide details of how much each customer owes – it simply gives us the total amount owed by all the customers. As a result it is not much use when we want to know whether a customer has paid the correct amount or if a customer’s payment is overdue.
The Sales Ledger
The Sales Ledger is a separate book to the General Ledger and it contains ledger accounts for each individual credit customer – this way it can track how much each customer owes.
Layout of the Sales Ledger
Like the General Ledger, the Sales Ledger consists of numerous ledger accounts. In the Sales Ledger these ledger accounts are referred to as customer accounts and are named after the different customers who buy from the business on credit terms.
The ledger accounts in the Sales Ledger will be laid out in the same manner as those in the General Ledger, so if the General Ledger contains T-accounts, the Sales Ledger will as well.
It is important to remember that the Sales Ledger provides a breakdown of the amounts recorded in the SLCA in the General Ledger. As a consequence, if an entry is made in the SLCA there should be an entry (or entries) made in the customer accounts in the Sales Ledger.
This is illustrated in the diagram below where the SLCA from the General Ledger for a business is shown on the left and the customer accounts from the Sales Ledger are shown on the right.
Note that each entry recorded in the above SLCA is reflected in the entries made in the customer accounts of the Sales Ledger. For example, the balance brought down on the debit side of the SLCA is £940 which represents the total amount owed by the business’ customers at the start of the period. If we add up all the balances brought down on the debit sides of the Sales Ledger customer accounts we can see that they add up to the same amount; £940 (i.e. £500+£440). This is the case for each type of entry in these ledger accounts.
You should also note that where an entry is recorded on one side of the SLCA, the corresponding entries in the Sales Ledger customer accounts will be recorded on the same side. For example, gross sales are recorded on the debit side of both the SLCA and in the Sales Ledger customer accounts.
The Double-entry system
Lastly, you should note that the Sales Ledger is not part of the double-entry bookkeeping system as it is just used to provide more information on one of the accounts in the General ledger (which is where the double-entry takes place).
As a result, if a debit or credit entry is made in a customer account in the Sales Ledger there will not be a corresponding credit or debit entry made somewhere else in another ledger account in the Sales Ledger.