Understanding Subledgers and Why You Need Them

Your general ledger is designed to provide the balance of each of the accounts in your chart of accounts, while the subledger is designed to ... Thisdeviceistoosmall Ifyou'reonaGalaxyFold,considerunfoldingyourphoneorviewingitinfullscreentobestoptimizeyourexperience. Skiptomaincontent EditorialDisclosure Wehavenotreviewedallavailableproductsoroffers.Compensationmayimpacttheorderofwhichoffersappearonpage,butoureditorialopinionsandratingsarenotinfluencedbycompensation. 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SearchIcon Clickheretosearch SearchFor TheAscent Knowledge Accounting WhatIsaSubledger,andWhyIsItImportant? byMaryGirsch-Bock| UpdatedAug.5,2022-FirstpublishedonMay18,2022 Manyoralloftheproductsherearefromourpartnersthatpayusacommission.It’showwemakemoney.Butoureditorialintegrityensuresourexperts’opinionsaren’tinfluencedbycompensation.Termsmayapplytoofferslistedonthispage. Imagesource:GettyImages Subledgersarepartofyourgeneralledgerandprovidedetailonspecifichigh-activityaccounts.Learnmoreaboutsubledgersandwhythey’reimportantforyoursmallbusiness. Asubledgerorsubsidiaryledgerprovidesthedetailsthatmakeupthebalanceofspecificgeneralledgeraccounts.Becausegeneralledgeraccountsonlyprovideanendingbalanceforeachparticularaccount,asubsidiaryledgerisusedtoprovidethedetailsthatresultinthatgeneralledgerbalance.Onlyhigh-activityaccountsinyourgeneralledgerwilluseasubledger.Overview:Whatisasubledger?Imaginelookingatyourgeneralledgerandseeingthatyoucurrentlyowe$4,500toyourvendors,buthavingnoideahowmuchyouowetoeachparticularvendor.Thesameissuecanalsoimpactyouraccountsreceivablebalance.Althoughyourgeneralledgerbalanceinformsyouthatyourcustomerscurrentlyowe$10,000,howcanyoucollectthosefundsandfollowuponlatepaymentsifyoudon’tknowwhichcustomersowehowmuch?That’swhysubsidiaryjournalsaresoimportant.Theyprovidethedetailsforhigh-activitygeneralledgeraccounts,makingiteasytopayyourbillsandcollectbalancesfromcustomers.Subsidiaryledgeraccountsarecommonplaceforgeneralledgermasteraccountssuchascash,accountspayable,accountsreceivable,andsales.Subledgerexamplesincludethefollowing:CustomeraccountsVendoraccountsBankaccountsSalesaccountsFixedassetaccountsIfyourbusinessisverysmall,andyouonlyhaveoneortwovendorsorcustomers,youcaneasilytrackyourbalancesinyourgeneralledger.Butoncevendororcustomeractivityincreases,you’llneedawaytotracktheindividualtransactionsthatmakeupthebalanceofthosegeneralledgeraccounts.Onlysubledgeraccountingwilldothat.Ifyou’reusingaccountingsoftwaretomanageyourbusinessfinances,yoursoftwarewillautomaticallycreatesubledgeraccountsforyou,eliminatingtheneedtotrackthesetransactionsseparately.Accountingsoftwarewillrenderthesubledgervs.generalledgerissueirrelevant.3differencesbetweenageneralledgerandasubledgerThoughdesignedtofunctiontogether,therearequiteafewdifferencesbetweenageneralledgerandasubledger.Thefollowingaresomeofthemoreimportantones.1.ThegeneralledgerispartofyourchartofaccountsYourgeneralledgerservesasyourchartofaccounts,whileyoursubledgeristheinformationthatfeedsintoyourgeneralledgerbutdoesnothaveitsownchartofaccounts.Inotherwords,thegeneralledgercanfunctionjustfinewithoutsubledgers,butasubledgerrequiresageneralledgertofunctionproperly.2.GeneralledgersandsubledgershavedifferentnumbersofaccountsYourgeneralledgeraccountcontainsonlyonespecificaccountforeachcategory,whileasubledgercanhaveanunlimitednumberofaccounttransactions.Forexample,yourgeneralledgerhasonlyoneaccountspayableaccount,whereasyoursubledgercanhaveanunlimitednumberofsub-accounttransactionsthatmakeupthetotalofyouraccountspayableaccount.3.Generalledgeraccountsprovidesummaries,whilesubledgeraccountsprovidedetailsYourgeneralledgerisdesignedtoprovidethebalanceofeachoftheaccountsinyourchartofaccounts,whilethesubledgerisdesignedtoprovideyouwiththedetailsthatmakeupthatparticularaccount. GeneralLedger Subledger Consideredmasteraccountswherealltransactionsandbalancesarerecorded Usedtorecordthedetailsofgeneralledgeraccountit’slinkedto Examplesofaccountsincludebanking,accountsreceivable,accountspayable,sales,andfixedassets Examplesofaccountsincludebanktransactions,customeraccounts,salesaccounts,vendoraccounts,andfixedassettransactions Transactioninformationvariesfromaccounttoaccount Eachgroupoftransactionssharessimilarcharacteristics Thereisonlyoneaccountforeachcategory Thereareoftenseveralaccountsforeachofitscorrespondinggeneralledgeraccounts Containsonlysummaryinformation Containsdetailedinformationabouteachtransaction Doesnothaveabalancingrequirement Musttotaltheamountdisplayedintheappropriategeneralledgeraccount Thistabledetailsthesignificantdifferencesbetweenageneralledgerandasubledger.BestpracticeswhenusingasubledgerIfyou’restillusingamanualaccountingsystem,therearesomethingsyou’llneedtopaycloseattentiontowhenusingasubledger.MakesurethebalancesmatchThetransactiontotalinyoursubsidiaryledgeraccountshouldalwaysmatchthetotalinyourgeneralledger.Forexample,ifyouhavemultipleaccountsreceivablesubledgeraccountsthatcurrentlyequal$15,000,youraccountsreceivablebalanceinyourgeneralledgershouldalsobe$15,000.Ifthebalancesdonotmatch,youshouldreconciletheaccounttodeterminethereasonforthedifference. GeneralLedgerAccountasof12-31-2020 Debit Credit AccountsReceivable $15,000 AccountsReceivableSubledgerasof12-31-2020 Date Customer Debit Credit Balance 12-10-2020 J.Smith $ 1,200 $ 1,200 12-15-2020 M.Jones $ 4,000 $ 5,200 12-18-2020 W.Brown $ 5,000 $10,200 12-19-2020 C.Johnson $ 1,800 $12,000 12-22-2020 S.Smith $ 3,000 $15,000 12-23-2020 W.Brown $5,000 $10,000 12-27-2020 J.Johnson $ 5,000 $ 5,000 12-31-2020 Total $20,000 $5,000 $15,000 Youraccountsreceivablegeneralledgerhasabalanceof$15,000atthecloseof2020,matchingyouraccountsreceivablesubledger,whichincludessevendistinctcustomerbalances.MakesuretocompleteyourclosingentriesafterreconciliationAfteryouhavereconciledallofyoursubledgeraccounts,besurethatyouproperlycompletetheaccountingcyclebyenteringanyclosingentriesoradjustingentriesyoumayhave,includinganymissingtransactions.Youmayalsoneedtoreverseanyerroneousduplicateentries.ConsiderswitchingtoanautomatedaccountingsystemIfyou’retiredofmaintainingsubledgersforyourhigh-volumegeneralledgeraccounts,considermakingtheswitchtoaccountingsoftware.Usinganaccountingsoftwareapplicationwilltrackyoursubledgertotalsandautomaticallytransferthetotalofthosetransactionstoyourgeneralledger,eliminatingtheneedtomanuallytrackthem.Usingaccountingsoftwarealsoeliminatestheneedtorollsubledgeraccounttotalsupintoyourgeneralledgeratmonth-end.Additionally,itautomatestheentirejournalentryprocess,sotheonlymonth-endentriesyou’llneedtocompleteareadjustingentriesforinterest,depreciation,andamortization.SubledgersareanimportantpartoftheaccountingprocessWhilethegeneralledgeristhebackboneofyourdouble-entryaccountingsystem,subledgersplayanimportantroleaswell,detailingthetransactionsthatmakeupyourgeneralledgerbalances.Theuseofaccountingsoftwarecansimplifytheprocessofmaintainingmultiplesubledgeraccounts,eliminatingtheneedtorecordmultipletransactionsmanually.Itcanalsoreducetheamountoftimeyouneedtospendonresearchingandreconcilingout-of-balanceaccounts.Butwhetheryourecordyoursubledgeraccountsautomaticallyormanually,theyareanecessityformanagingyoursmallbusinessaccountingproperly,sobesurethey’redoneright. AbouttheAuthor MaryGirsch-Bock icon-button-linkedin-2x icon-button-twitter-2x MaryGirsch-BockistheexpertonaccountingsoftwareandpayrollsoftwareforTheAscent.Shepreviouslyworkedasanaccountant. ShareThisPage FacebookIcon ThisiconsharesthepageyouareonviaFacebook BlueTwitterIcon SharethiswebsitewithTwitter LinkedInIcon ThisimagelinkstosharethepageoverLinkedIn. EmailIcon Sharethiswebsitewithemail We'refirmbelieversintheGoldenRule,whichiswhyeditorialopinionsareoursaloneandhavenotbeenpreviouslyreviewed,approved,orendorsedbyincludedadvertisers. TheAscentdoesnotcoveralloffersonthemarket.EditorialcontentfromTheAscentisseparatefromTheMotleyFooleditorialcontentandiscreatedbyadifferentanalystteam. TheMotleyFoolhasadisclosurepolicy. Manyoralloftheproductsherearefromourpartnersthatpayusacommission.It’showwemakemoney.Butoureditorialintegrityensuresourexperts’opinionsaren’tinfluencedbycompensation.Termsmayapplytoofferslistedonthispage. 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