Subledger vs General Ledger: What's The Difference?

The general ledger shows summaries of your double-entry accounting at any given point in time. A sub-ledger records the detailed information of the summaries of ... Clientsandresults MoreCustomers Wesavedmorethan$1milliononourspendinthefirstyearandjustrecentlyidentifiedanopportunitytosaveabout$10,000everymonthonrecurringexpenseswithPLANERGY. CristianMaradiaga KingOcean BookaLiveDemo Downloadafreecopyof"PreparingYourAPDepartmentForTheFuture",tolearn: HowtotransitionfrompaperandexceltoeInvoicing. HowAPcanimproverelationshipswithyourkeysuppliers. Howtocaptureearlypaymentdiscountsandavoidlatepaymentpenalties. HowbettermanagementinAPcangiveyoubetterflexibilityforcashflowmanagement. DownloadFreeCopy SubledgervsGeneralLedger:What’sTheDifference? Writtenby KeithMurphy 16minread AccountingFinancialReporting DownloadPDF SubledgervsGeneralLedger:What’sTheDifference? Financialstatementsarecommonplaceforanybusinessthatdoesin-housebookkeeping.Werelyonthetrialbalancetoshowustheperfectmatchforanygivenaccountingcycle.Thebalancesheetgivesusagoodideaofratesofreturn.Thegeneralledgerallowsustocheckaccountbalancesatanygivenmoment. Subledgerandgeneralledgersareoftenconfusedasbeingthesamething.Therealityisthattheyaredifferentandtheyworkwitheachother.Accountantshavebeenusingthesub-ledgertoexplainpartsofthegeneralledgertotheirclientele.Tounderstandyourgeneralledgerbetter,youneedtohavesub-ledgers.Thisarticlewillexplainwhatageneralledgerandsub-ledgerareandhowtheyaredifferent.Wewillalsodiscusshowthisinformationcanhelpyougrowyourbusiness. WhatIsAGeneralLedger? Youhaveprobablylookedatyourgeneralledgeramilliontimeswithoutthinkingmuchaboutit.Itisajournalofallyourfinancialtransactionsthattakeplaceeveryday.GeneralledgersuseTaccountstoshowdebitsandcreditstoeachaccountthatmakesuptheledger.Itexplainseverysingletransactionthathasoccurred.Ifatransactionhasbeenrefundedorvoided,itisnotremovedfromtheledgerbuthasareversalentrymade.Whatgeneralledgeraccountsconsistofareoftenbasedonthenatureofthecompany.CommonmasteraccountsincludeCashOnHand,AccountsPayable,AccountsReceivable,Income,Expenses,Assets,andLiabilities.Assetsareoftenbrokenupintocurrentassetsandfixedassets.Fixedassetsareitemsthatarelong-term(ayearormore),suchasbuildings,vehicles,computers, andheavyequipment.Currentassetsareshort-termitemsthatlastlessthanayear. Thechartofaccountsisalsoknownascontrolaccounts.Abenefittotheseaccountsisabuilt-incheckingmechanismthatprovidesinformationregardingerrorsandfrauddetection.Ifyouhaveanemployeehandlingallthebookkeeping,youneedtorethinktheplan.Twoormoreemployeeskeepfresheyesonthetransactionsandensureaccuratereporting. WhatIsASubledger? Asub-ledger,alsoknownasasubsidiaryledger,isusedtounderstandthenumbersassociatedwithyourgeneralledger.Let’ssayyouhave$180,000inCashOnHand.Moreoftenthannot,thataccountisthecashyouhaveavailableinyourbankaccountsandshort-terminvestments(somethingyoucanconvertintocashwithin90days).Asub-ledgeraccountwillshoweachbankaccountandthetransactionswithinittoshowwhytheamountis$180,000.Verysmallbusinesses,withonebankaccountandoneortwovendors,won’tusesubledgeraccounting.Onceabusinessgrowstothepointwheretheyhavemultipleaccountswithineachoftheirmainfiveaccounts,subledgeraccountingwillbecomeanecessitytokeepthingsrunningsmoothly. Theaccountsthataremostoftenassociatedwithsubsidiaryaccountsare: AccountsPayable AccountsReceivable Inventory Purchases FixedAssets Thisisduetothefactthattheseaccountshavethemosttransactionsthananyotheraccountsinthegeneralledger.WhenitcomestoInventory,itemsforthataccountcomefromthePurchasesaccount.TheInventoryaccountkeepstrackofthenumberofitemsinthewarehouse.WheninventorythatisoutdatedorobsoleteiswrittenoffifunsoldorintoAccountsReceivablewhensoldatadiscountedrate.ThesalesofinventorythenaffectAccountsReceivablewhichwillalsoaffectIncome.Thereisaseparateaccountfordiscountstoaccountforlossofincome. FixedAssetsgrowasthebusinessgrows.Acquiringnewmachinerytomakeaproductoranewbuildingforyouroffices.Companycarsandtelephoneequipment,anythingyoucanimagineneedingwillhaveitsownsubsidiaryaccount.Itisespeciallyimportantbecausetrackingappreciationanddepreciationhasaneffectonthevalueoffixedassets. GeneralLedgerVs.Subledger Althoughwehaveexplainedeachtoyou,itcanstillleaveyouwithquestionsonhowtheydiffer.Hereisaquickrundownofhowdifferenttheyare. Ageneralledgerisyourmasterchartofaccountsthatshowsalistoftransactions,youcannotrunabusinesswithoutit.Asub-ledgerexplainstransactionsandfeedsintothegeneralledger.Youdonothavetohaveasub-ledger.However,wefindthatmanysmallbusinessesdobetterwhenusingsub-ledgers. Asub-ledgerhasnochartofaccounts.Ageneralledgerhasafewaccountsinthefollowingcategories;assets,liabilities,income,expenses,andequity.Theyalsohaveafewsub-accounts,suchasaccountspayableandaccountsreceivable.Accountsareoftencreatedasneeded.Suchaswhenobtaininganewloan,bankaccount,lineofcredit,oraddingaproductorservice. Sub-ledgerscanhavealargenumberofaccountswithineachmainaccount.Ifyouhavefivebankaccounts,eachonewillhaveitsownsub-ledger.Thesameistrueforyourcustomeraccounts,vendors,creditcards,andassets. Thegeneralledgershowssummariesofyourdouble-entryaccountingatanygivenpointintime.Asub-ledgerrecordsthedetailedinformationofthesummariesofthegeneralledger.Whenperformingyouraccountingduties,everypennymustbeaccountedfor.Everyassetmustbeaccountedforaswell.Thiswillbealifesaverwhenapplyingforloansorenduringanexternalaudit. Ageneralledgerisnotrequiredtobalance.Itissimplyasnapshotofthecompany’sfinances.Asub-ledgermustbalanceinordertoreflectcorrectinformationregardingthetransactions.Ifitisoutofbalance,thereisaproblem.Theimbalancemustbetakencareofimmediatelyoryoucanfindyourselfinafinancialcrisis. Keepingtrackofthegeneralledgerisimportantforgeneralaccountingpurposes. WhyUseSubledgers? Sub-ledgersareveryimportanttoexplainyourfinancialsituation.Investorsandbankswanttoknowthatyouhaveaviablebusinessbeforeprovidingyouwithcapital.Let’ssaytheyareimpressedwithyouraccountsreceivablenumbers.Theywillbemoreimpressedbyseeinghowmanycustomersyouhavethatarecurrentlyowingyoumoney.Atthesametime,youraccountspayablecantellthemalotabouthowyouarespendingmoney.Asubledgerreportexplainsmoreabouttheaccountspayableandifyouarepayingthingstimelyandifyouaretakingadvantageofdiscountsavailabletoyou. Italsohelpsyouunderstandwhereyourmoneyiscomingfromandgoing.Everytransactionhastoberecordedandyoucanfindproblematicaccountsthatneedtobeconfronted.Youcanstopoverspendingandfindsuitableareastocutbackonwhenmoneyistight.Youcanalsousesub-ledgerstohelpdetermineyournextyears’budget.Don’tforgetaboutauditors,theylovesub-ledgeraccountstohelpthemtracktransactionstoensureproperrecordingofinformation.Someauditors,suchasworker’scompensation,onlylookatspecificaccountswhichwillsaveyoutimeonpreparingpaperwork. Anotherkeyfactorinusingsubsidiaryaccountsisthatitdoesn’tbogthegeneralledgerdown.Ifyoudidn’thavesuchaccountsaTrialBalancecouldbecomeoverwhelmingwithsomanyaccountsbeinglisted.Noonewantstoreadpagesandpagesoftransactions,sosub-ledgerssavetheday.Furthermore,youcandelegatetheaccountingprocessesbetweenmorethanoneemployee.Onecanpostalltransactionstothesubsidiaryledgersdailyandanotherposttothegeneralledgermonthly.Thiskeepsyouraccountsprotectedfrompotentialfraudandsimplifiestheworkloadoneachemployee. BestPracticesForSubledgerAccounts Forthosethatdecidetousesub-ledgeraccountstoimprovetheirunderstandingoftheirfinancialhealth,therearesomethingsyouneedtoremembertodo. Byimplementingthesetoyouraccountingprocess,youwillkeepyourbooksbalancedandeasytounderstand. Alwaysremembertoensuretheaccountsbalanceeachmonth.Forexample,thetotalamountofallyouraccountsreceivablesshouldbethesamenumberasthetotalonthegeneralledger.Ifnot,youneedtogobackandfindoutwhy.Therecouldbeasimplefixascorrectinganentry(wrongdateorforgettingacredit),enteramissingentry,ormakinganadjustmentjournalentry.Thisisataskthatisnottobeputoffforquarterlyreportsorannualreports.Bydoingiteachmonth,youareensuringthatyouraccountingrecordsareaccurateanduptodate. Completeyourclosingentriesafteryouhavereconciledthesub-ledgeraccounts.Ifyoudonotdothis,youcouldenduphavinginflatednumbersthenextmonth.Inflatednumbersarenothelpfulwhenitcomestopayingtaxes.Youcouldenduppayingmorethanyoushould,orfindyourselfowingalotmorethanplannedfor.Itcanalsocostyouaninvestororlineofcredit.Let’ssayyourexpensesareconsiderablymorethanyourincome.Aninvestororlenderisgoingtolookatthatandinstantlybeconcernedaboutyourcashflow.Furthermore,ifyourincomeisoverstated,youcouldgetaloanorinvestorandthenbeinhotwaterwhenitislearnedtobeuntrue.Yourbusinessrelationshipsrelyonyourfinancialsecurityandhonestyisthebestpolicywhenitcomestofinances. Limitwhohasaccesstosubsidiaryaccounts.Youcandothisbyspecificaccounts,suchastheaccountspayabledepartmenthandlingallaccountspayablesub-ledgeraccounts.Forsmallerbusinesses,itcouldbethatoneortwoemployeeshaveaccesstoupdatedaily.TheVice-PresidentofFinanceshouldalwayshaveaccesssincetheyareresponsibleforpresentingfinancialinformationtoauditors,loanofficers,investors,andsometimestotheChairmanoftheBoard. Conclusion Sub-ledgeraccountsareanimportantpartofthesmallbusinessaccountingsystem.Theyarethedetailsofthetransactionsthattakeplaceandcanshowhowwellyouaredoing.Orwhereyouneedtobeimproving.Itsupportsyourbalancesheetandtrialbalance,whichlendersandinvestorswanttolookat.Sometimes,avendorwantstoseeitalso.Whilemanyperformtheiraccountingdutiesmanually,werecommendthatyouoptforaccountingsoftwarethatfeaturesanautomatedsystem.Usingautomationensuresthateverytransactionisaccountedforassoonasyoupaysomethingorreceivepayment.Yourbookkeeperwillgetnotificationsifsomethingisoffbalanceandyoucangenerateyourreportseasily.Ifthereisaproblem,itwon’ttakeaslongtofigureouttheissueandsolveit. Stoptorturingyourselfbyusingantiquatedmethods!Weofferaccountingsoftwarewithautomationtofreeupyourtimeforotherimportantprojects.Thesesamesystemsalsoprotectyouagainsterrorsandfraudulententries.Giveusacalltodaysothatwecandiscusshowourservicecanhelpyou. 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