The Difference Between Sub Ledger vs. General Ledger
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The main difference between a general ledger and sub ledger is that a general ledger provides a complete snapshot of your company's financial ... 0 What’stheDifferenceBetweenaSubLedger&GeneralLedger? Jul27 WrittenByTanyaAkimenko Ifyou'redoingyourownbookkeeping,youmayuseageneralledgerbyitselforageneralledgerwithseveralsubledgers(shortforsubsidiaryledgers).Thechoicepartlydependsonthesizeofyourbusinessandpartlyonthecomplexityofyouroperations.Understandingthesimilaritiesanddifferencesbetweenasubledgervs.ageneralledgerandhoweachfitsintodouble-entryaccountingwillhelpyouusethesemoney-trackingtoolstotheirbestadvantage.SubLedgervsGeneralLedger Themaindifferencebetweenageneralledgerandsubledgeristhatageneralledgerprovidesacompletesnapshotofyourcompany'sfinancialsituationwhilesubledgersprovidethedetails.GeneralLedgersAgeneralledgerisacompleterecordorjournalofallofthefinancialtransactionsthatoccurinabusiness.Thegeneralledgerprovidesatrialbalanceandisusedtopreparefinancialstatementssuchasthemonthlyincomestatement,balancesheet,cashflowstatement,andprofitandlossstatement.Withinthegeneralledger,transactionsareseparatedintocategoriesasdefinedbythechartofaccounts.Masteraccountsofteninclude:Assets.Theseincludefixedassetslikevehicles,buildings,machinery,computers,andequipment,aswellascurrent(short-term)assetssuchascash,inventory,andaccountsreceivable.Liabilities.Theseincludeeverythingyourcompanyowesothers,includingaccountspayableandbankdebt.Income/Revenue.Thisincludesincomefromsales,servicesrendered,andinterest.Expenses.Theseincludepurchasesandbills.Equity.Thisincludessharecapital,reserves,premiumaccount,buildingequity,andsoon.SubLedgersSubledgershelpyoutokeepyourgeneralledgerbetterorganized.Let'stakeBakin'Bunsasahypotheticalexample.ThisJacksonville,FLbakerystartedoutasatwo-personmicrobusinessandgraduallyexpanded.Astheygrew,theownersfoundthattheyneededtocreatesubledgerstobetterunderstandtheirfinanceswithoutwadingthroughdozensoftransactionsinthegeneralledger. Bakin'Bunsnowhasthefollowingsubsidiaryledgersthatallfeedintothegeneralledger:Accountspayable(vendorsandbankloans)BankloanforequipmentBankloanforpremisesFlourwholesalerEggwholesalerSugarwholesalerAccountsreceivable(customeraccounts)MustardDogCateringCompanyHappyValleyElementarySchoolHundredOaksElementarySchoolFixedassetsBuildingCompanycarOfficecomputerPointofsale(POS)tabletCommercialmixerCommercialovenCoffeemachineColdroomBusinessbankaccountsSavingsaccountCheckingaccountCreditcardaccountInventoryHotdogbunsHamburgerbunsSandwichloavesBreadsticksBagelsCashonhandTokeeptrackofthebakery'soperations,transactioninformationispostedtotherelevantsubledgersdailyincludingdetailssuchasdiscountsapplied,towhomeachorderwassold,vendorcredits,andunsoldinventorythatwasdonatedorotherwisewrittenoff.Depreciationoffixedassetsisalsonotedintherelevantsubledger.Onceaweekoronceamonth,asummaryofthetransactioninformationfromtherelatedsubsidiaryledgeraccountsispostedtothegeneralledgersothatitcontributestothetrialbalance.Whilethegeneralledgerdoesn'thavetobebalanced,eachsubledgeraccountmustbebalancedonceamonthtomakesureeverydollarhasbeenaccountedforandnotransactionshavebeenmissed.WhyUseSubLedgers?Usingsubledgersinyouraccountingprocessmightmerelyseemtocomplicatethings,butitusuallyendsupmakingyouraccountingprocesssimpler.Becausethedetailedinformationabouteachtransactioniscontainedintheapplicablesubsidiaryledger,yourgeneralledgerwillbefarlessclutteredandmucheasiertoread.Atthesametime,yoursubsidiaryledgersallowyoutogointofarmoredepthwhenanalyzingyourbusinessoperations.Forthisreason,theyareespeciallyhelpfulforpotentialinvestorsandlenders.Forexample,ifBakin'Bunswantedtoattractmoreinvestorsortakeoutanewloan,thepotentialinvestorsorlenderscouldrefertotheirsubledgerstoseehowmanyregularclientstheyhad,calculatetheaverageordersize,andworkoutthepotentialearningsifthebusinessweretoexpand.IfBakin'BunsweretobeselectedforaFloridasalestaxaudit,havingdetailedsubledgerswouldmaketheauditprocessmorestraightforward,too.TheyortheirFloridasmallbusinessaccountantcouldsimplyshowtheauditorstheirincomeorrevenuesubledgersratherthangivingtheauditorsaccesstotheirgeneralledger,whichmightraisefurtherquestionsorleadtoanunnecessaryexplorationofthebakery'sassets.HowtheGeneralLedgerandSubLedgersAreUpdatedUsingtheDouble-EntryAccountingMethodCompaniesthatfollowadouble-entryaccountingprocessmustposteverytransactiontwice—onceasadebitandoneasacredit.Theamountofthedebitandcreditmustmatchtokeeptheaccountsbalanced.Forexample,whenBakin'Bunsreceivesapaymentof$250fromtheirclientMustardDogsCateringCompany,theypostacreditof$250totheircheckingbankaccountsubledgerandacorrespondingdebitof$250totheMustardDogsCateringCompanysubledgeraccount. PostingthesetransactionstothesubledgeraccountshastheeffectofincreasingthebalanceofBakin'Buns'Income/Revenueaccountby$250andreducingthebalanceoftheirAssets(underAccountsReceivable)by$250inthegeneralledger.HowAccountingSoftwareCanHelpTostreamlinetheprocessofpostingbalancesandtransactions,manybusinessesfindithelpfultouseaprogramlikeQuickBooksOnline.QuickBookscanimportaccountbalancesfromthepreviousmonthplusthemonthlystatementsfromyourfinancialaccounts,makingiteasytobalanceyourindividualgeneralledgeraccountswithoutmissinganything.BusinessesthatchoosetoposttheirtransactionsandreconcileinQuickBooksOnlinecangetQuickBookstrainingfromacertifiedProAdvisorandreconciletheiraccountsin-houseorpayforoutsourcedbookkeepingservices.Whicheveroptionyouchoose,theimportantthingisthateachtransactionispostedcorrectlyandtheaccountsarebalancedeachmonth.SubLedgervs.GeneralLedger:ToolstoHelpYouTrackTransactionsEasilyItcantakeabitofexperiencetoappreciatethenuancesofsubledgersvs.thegeneralledger,butsubsidiaryledgersarebasicallythe"zoomedin"financialtransactionrecordsthatfeedintothegeneralledger.Bothserveadistinctpurposeandbotharenecessaryformostbusinesses. Ifyoursmallbusinessisgrowingandyou'restrugglingtokeeptrackofallofyourvendor,client,andloanaccounts,itcouldbetimetostartusingsubledgers.Notonlywillyoubetterbeabletomanageyourbusiness,butitcouldhelpyouattractnewinvestorsandqualifyforbusinessloansaswell. subledgervsgeneralledger TanyaAkimenko Next Next 7ProTipsforEasierBookkeeping
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