Subledger vs. General Ledger: What You Need To Know

There are several differences between general ledgers and subledgers, mostly revolving around the fact that a subledger is a subsidiary data ... ResourceLibraryGeneralFinanceandAccountingThisarticleexaminesthedifferencesbetweengeneralledgersandsubledgers,bestpracticesforusingsubledgers,andtheimportanceofgeneralledgersandsubledgersinaccounting.Accuratebookkeepingisthefoundationofbusinessstabilityandanecessarypreconditionforgrowth.Asingledatabaseoftransactions,knownasageneralledger,isusuallyenoughforfledglingcompaniesandstartupstokeeptheirrecordsorganized.Thisgeneralledgerincludeseverytransactionthecompanymakesandeveryobligationthecompanymaintains. Butsimpleledgeraccountsmayhaveahardtimekeepingupwithabusinessasitgrowsincomplexityandscale.Theremaybealargevolumeofitemstoorganizeorcomplextransactionsthatcan’tbecapturedasasinglelineiteminthegeneralledger.Companiesthatmaintainnumerousstreamsofrevenueandmultipledebtsmayneedamoredetailedbookkeepingmethod. Businessesthatneedmorecaninstitutesubledgeraccounting,whichisdesignedtocapturemoregranulardetailsabouttransactionsthanthosethatappearinthegeneralledger.Abusinesscankeepmultiplesubsidiaryledgers,eachwithitsownpurposeandallmatchingupwiththegeneralledger. Inthisarticle,we’llexplore: WhatageneralledgerisWhatasubledger(orsubsidiaryledger)isThedifferenttypesofsubledgersWhybusinessesusesubledgersThekeydifferencesbetweenasubledgervs.generalledgerBestpracticesforusingsubledgers,andTheimportanceofgeneralledgersandsubledgersinaccountingWhatisageneralledger? Ageneralledgerisabusiness’ssourceoftruthforaccounting.It'sadocumentordatabasethatcontainsrecordsofallthebusiness’financialtransactions,bothinaccountsreceivable(AR)andaccountspayable(AP).Thegeneralledgerisdividedintoseveralaccounts,calledmasteraccountsorcontrolaccounts,allofwhichareorganizedviaachartofaccounts.Examplesofaccountsyoumayfindinageneralledgerincludebanking,accountsreceivable,accountspayable,sales,revenue,andfixedassets. Generalledgerstypicallyusethedouble-entryaccountingmethodinwhicheachentryintoanaccountrequiresthatyouputanequalandoppositeentryintoanotheraccount.Forexample,ifyoureceiveacheckfor$500,youentera$500debitinthecashaccountanda$500creditintheaccountsreceivableaccount.Whatisasubledger(orsubsidiaryledger)? Ascompaniesscale,theymayfindthatkeepingallthedetailedfinancialdataabouteachtransactioninthegeneralledgeriscumbersomeandunworkable.Forexample,ifyourbusinesshas2,000transactionsinARinagivenmonth,youraccountingclerkwouldneedtogothroughallthoseentriestofindthetotal.Thiscanbeamajorinconveniencewhenlookingtogetaquicksnapshotofyourbusiness’financials. Growingcompaniesneedamoresophisticatedsystemoforganizingeverythingthat’shappeninginthebusinesssotheycanseethemostimportantdataataglancewhilekeepingtrackofallthegranulardetail.Theansweristocreatesubsidiaryledgers,alsocalledsubledgers.Thesearemorenarrowlyfocusedledgersthatcontainmoredetailedinformationaboutthevariousmasteraccountsinthegeneralledger. Eachsubsidiaryledgerisfocusedonaspecificcategoryoffinancialtransactions,suchascustomeraccounts,salesaccounts,fixedassettransactions,orbanktransactions.Thelistedtransactionsineachsubsidiaryledgeraccountconnecttothegeneralledgeraccounts.Eachsubledger’stotalisreflectedinthetotalofthegeneralledger. Intheaboveexampleofthe2,000ARtransactions,allthesetransactionswouldbelistedinthecustomeraccountssubledger,thetotalofwhichwouldpopulatetheaccountsreceivablebalanceinthegeneralledgerforthatmonth.Commonsubledgerexamples Noteverybusinesselectstousethesamenumberortypesofsubledgers.Howeachcompanysetsuptheirbookkeepingwilldependonthebusiness’needs.Herearesomecommontypesofsubsidiaryledgersthatbusinessesmaydecidetocreate. 1.Customeraccounts Acompanymightkeepasubsidiaryledgerforitscustomeraccounts,eachofwhichconnectstotheaccountsreceivabletotaledinthegeneralledger.Thecumulativetotalinallthecustomeraccountsubledgersshouldequalthetotalaccountsreceivableinthegeneralledger. 2.Vendoraccounts Acompanymightkeepasubsidiaryledgerforitsvendoraccounts,eachofwhichconnectstothegeneralledger’saccountspayable.Thecumulativetotalofdebitsinallthevendoraccountsubledgersshouldequalthetotalaccountspayableinthegeneralledger. 3.Bankaccounts Thebankaccountssubledgerrecordsthecashthatisavailableinthecompany’sbankaccountsandshort-terminvestments.Thetotalofalltheaccountsinthissubledgerwillindicatetheamountofcash-on-handthecompanyhasatagivenmoment.  4.Sales Thesalessubledgerlistsdetailsofsalesmadebythecompany,whichcanbeorganizedorcategorizedinseveralways,suchasbyregion,inventorycategory,product,customer,orsalesperson.Thetotalofthesaleslistedherewillpopulatethetotalforthesalesmasteraccountinthegeneralledger. 5.Fixedasset Afixedassetsubledgerisusedtoconveydetailsofacompany’sfixedassets,suchasproperty,equipment,vehicles,andsoftware.Forexample,theentriesherecanreflecttheasset’soriginalcost,anyadditionalcosts,andpossiblyrestatementorrevaluationcosts.Thisinformationcanbeusedtoanalyzedepreciation. 6.Revenue Arevenuesubledgercontainsinformationonalltransactionsthatcreatedrevenueforthecompany,includingdetailslikeinvoicenumbers,line-items,discounts,payments,fees,refunds,andtaxinformation.Thebalanceofeachtransactionlistedherecontributestothetotalbalanceoftherevenueaccountinthegeneralledger.Whydobusinessesusesubledgers? Subledgershelpensuretheaccuracy,organization,control,andfinancialagilityacompanyhasoveritsbooks.Subsidiaryledgersalsohelpaccountantscreatefinancialstatementsasnecessarysotheycanbereadyforanauditatanytime.Herearesomewaysthatcompaniesofallsizescanusesubledgerstoassistinbookkeeping. 1.Accuracyandorganization Companiesneedaccuratebooks,andbusinesseswithhightransactionvolumesandmultiplerevenuestreamsareindangeroflettingdetailsfallthroughthecracksiftheydon’thaveathoroughandorganizedaccountingmethod.Theycanusesubledgerstomaintainaccuracyandorganizationintheirbookkeepingifthegeneralledgeraloneisgettingtoodifficulttomanage. 2.Scaleandcontrol Asetofwell-organizedsubledgersallowsbookkeeperstohandlescale.Infact,thissystemcanreadilyorganizemillionsoftransactions. Transaction-leveldatacanbequitecomprehensive,sousingmultipledatabasestoorganizeandstorethemisnecessarysoasnottoletyourgeneralledgerfallintochaos. Forexample,salestransactionentriesmightincludedetailsliketheitemsold,customercontactinformation,dateandtimeofsale,uniquetransactionID,andthepurchaseprice.Allofthisdataisnotnecessarytoincludeinthegeneralledger,whichisintendedtotrackyourbusiness’totalsalestransactions.Thegeneralledgercanprovideanoverviewofsalesatahigh-volumebusinesswhileasubsidiaryledgerprovidesthefulldrill-down. 3.Auditreadiness Accountantsneverknowwhentheircompanymightbeaudited.It’sbesttoalwaysbereadytoprovidethoroughtransaction-leveldatatoauthoritiesinaccordancewiththeGenerallyAcceptedAccountingPrinciples(GAAP)establishedbytheFinancialAccountingStandardsBoard(FASB).Allbusinessescanbenefitfromthisreadiness,butit’sparticularlycrucialforcompanieswithhightransactionvolumesandoroperateacrossmultiplejurisdictions.  4.Financialagilityandinsight Financeteamsneedtobeabletoquicklyprovidedetailedinformationindocumentsliketheincomestatement,balancesheet,andcashflowstatement.Thisreportingisacriticalcomponentofthebusiness’strategicdecision-makingandcashmanagement.Providingthisinsightquicklyiseasierwhenfinancialstatementsarewell-organizedandproperlycategorizedintosubledgers.Subledgervsgeneralledger:what’sthedifference? Thereareseveraldifferencesbetweengeneralledgersandsubledgers,mostlyrevolvingaroundthefactthatasubledgerisasubsidiarydatasourcetothegeneralledger.Eachsubsidiaryledgerexistsonlyasasupporttothegeneralledger. Seethechartbelowformoreacloserbreakdownofthedifferencesbetweenthetwo:ThedifferencesbetweengeneralledgersandsubledgersWhatarethebestpracticesforusingasubsidiaryledger? Thekeybestpracticewhenusingasubsidiaryledgeristoensurethatthetransactionslistedinthesubledgermatchtherelatedgeneralledgeraccounts.Throughtheprocessofaccountreconciliation(usuallymonthly),you’llensuretheseentriesmatchupcorrectly.AllthebookkeepingintheseledgersshouldbedoneinaccordancewithGAAPstandards,whichdictatehowcompaniesshouldtracktransactionsandrelateddata. Companieslargeenoughtomakeuseofsubledgerswillmanagetheiraccountingintheirenterpriseresourcemanagement(ERP)systemsorintegratedaccountingsystems.Thisisthebestwayforfinanceteamstostreamlinetheirwork,stayorganized,reduceerrors,andproducefinancialreportingswiftly.Theimportanceofsubledgersandgeneralledgersinaccounting Inthebattleofledgervs.subledger,there’snotruewinner—bothhavetheirusesandcanbehelpfultobusinessesindifferentways.Generalledgersandsubledgersarebothimportanttoolsforbusinessestoadoptastheygrowandneedmoredetailedandcontrolledfinancialmanagement. Subledgers,especially,arevitalforgrowingcompanies,whichbenefitfromtheorganizationalpowertheyoffer. Businessesthatmanagetheirbookswithwell-executedledgersandsubledgersfromtheoutsetwillhavemoreaccuratefinancialrecords,bebetterpositionedintheeventofanaudit,andremainagileandflexibleastheygrow. Wanttoreceivemoretacticaladviceformanagingaccountingprocessesinyourinbox?Signupforournewsletter.AbouttheauthorKatieGustafsonKatherineGustafsonisafreelancewriterspecializingincontentformission-drivenchangemakerssuchastechdisruptors,visionarynonprofits,andbig-thinkingstartups.Sheistheauthorofabookaboutinnovationinsustainablefood,andherwritinghasappearedinSlate,TechCrunch,BusinessInsider,andForbes,amongotherplaces.Subscribetoournewslettercontent4ReasonsWhyYourMonthEndCloseProcessIsInefficientandHowToImproveItBlogViewmoreAccrualvs.CashAccounting:TheBasics,Benefits,andBusinessImplicationsBlogViewmoreReadyorNot:TheFutureofFinanceisHereWebinarViewmoreJointhe50,000accountsreceivableprofessionalsalreadygettingourinsights,bestpractices,andstorieseverymonth