Subledger vs General Ledger: What’s The Difference? : Planergy Software
Your general ledger serves as your chart of accounts, while your subledger is the information that feeds into your general ledger but does not have its own chart of accounts. In other words, the general ledger can function just fine without subledgers, but a subledger requires a general ledger to function properly. Companies large enough to make use of subledgers will manage their accounting in their enterprise resource management (ERP) systems or integrated accounting systems. This is the best way for finance teams to streamline their work, stay organized, reduce errors, and produce financial reporting swiftly. A fixed asset subledger is used to convey details of a company’s fixed assets, such as property, equipment, vehicles, and software.
Keeping track of the general ledger is important for general accounting purposes. The sub-ledger enhances the information provided within the general ledger. However, the general ledger acts as a control account for the sub-ledger. Despite the differences, the general ledger and sub-ledger also relate to each other.
Are the general ledger and general journal the same?
Some auditors, such as worker’s compensation, only look at specific accounts which will save you time on preparing paperwork. If your business is very small, and you only have one or two vendors or customers, you can easily track your balances in your general ledger. But once vendor or customer activity increases, you’ll need a way to track the individual transactions that make up the balance of those general ledger accounts.
The balance of each transaction listed here contributes to the total balance of the revenue account in the general ledger. As companies scale, they may find that keeping all the detailed financial data about each transaction in the general ledger is cumbersome and unworkable. For example, if your business has 2,000 transactions in AR in a given month, your accounting clerk would need to go through all those entries to find the total. This can be a major inconvenience when looking to get a quick snapshot of your business’ financials.
How the General Ledger and Sub Ledgers Are Updated Using the Double-Entry Accounting Method
General ledgers use T accounts to show debits and credits to each account that makes up the ledger. If a transaction has been refunded or voided, it is not removed from the ledger but has a reversal entry made. What general ledger accounts consist of are often based on the nature of the company. Common master accounts include Cash On Hand, Accounts Payable, Accounts Receivable, Income, Expenses, Assets, and Liabilities.
Fixed assets are items that are long-term (a year or more), such as buildings, vehicles, computers, and heavy equipment. The sub-ledger includes a subset of several general ledger accounts. Usually, it provides details on specific areas, including accounts receivables, accounts payables, fixed assets, etc. Having more information than the general ledger offers is highly crucial. The details may include the source of those transactions, the date, description, original balance, etc.
If the transactions are recorded in a subledger in a different account, then the total sum of the transactions will be recorded in the general ledger. The total amount should match the sum of the concerned line items in the general ledger. A subledger can include all business transaction details such as purchases, receivables, production costs, payables, and payroll. The most critical of those include accounts payable, accounts receivable, and prepaid expenses. Subledger balances should also agree with their corresponding general ledger account balances. Subsequently, financial transactions get summarized and become a part of the trial balance.
Best practices to follow when using general ledger
Before understanding the difference between them, it is crucial to study each individually. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. If you’re still using a manual accounting system, there are some things you’ll need to pay close attention to when using a subledger.
- If the general ledger does not reconcile with the subledger, then your financial statements will be inaccurate.
- On top of that, the general ledger segregates those records into debit and credit accounts.
- In the battle of ledger vs. subledger, there’s no true winner—both have their uses and can be helpful to businesses in different ways.
- One can post all transactions to the subsidiary ledgers daily and another post to the general ledger monthly.
- The sales of inventory then affect Accounts Receivable which will also affect Income.
- These are more narrowly focused ledgers that contain more detailed information about the various master accounts in the general ledger.
The transaction total in your subsidiary ledger account should always match the total in your general ledger. For example, if you have multiple accounts receivable subledger accounts that currently equal $15,000, your accounts receivable balance in your general ledger should also be $15,000. If the balances do not match, you should reconcile the account to determine the reason for the difference. The key best practice when using a subsidiary ledger is to ensure that the transactions listed in the subledger match the related general ledger accounts. Through the process of account reconciliation (usually monthly), you’ll ensure these entries match up correctly. All the bookkeeping in these ledgers should be done in accordance with GAAP standards, which dictate how companies should track transactions and related data.
Key Difference – General Ledger vs Sub Ledger
On top of that, other crucial information may also be required related to those transactions. But whether you record your subledger accounts automatically or manually, they are a necessity for managing your small business accounting properly, so be sure they’re done right. Your accounts receivable general ledger has a balance of $15,000 at the close of 2020, matching your accounts receivable subledger, which includes seven distinct customer balances.
The primary difference between the two is that the general ledger is a set of master accounts, whereas the subledger is a set of accounts that is a subset of the general ledger. The use of accounting software can simplify the process of maintaining multiple subledger accounts, eliminating the need to record multiple transactions manually. It can also reduce the amount of time you need to spend on researching and reconciling out-of-balance accounts. A general ledger is a complete record or journal of all of the financial transactions that occur in a business. The general ledger provides a trial balance and is used to prepare financial statements such as the monthly income statement, balance sheet, cash flow statement, and profit and loss statement.
Journal Entry for Direct Materials Variance
While the general ledger is the backbone of your double-entry accounting system, subledgers play an important role as well, detailing the transactions that make up your general ledger balances. There are several differences between general ledgers and subledgers, mostly revolving around the fact that a subledger is a subsidiary data source to the general ledger. Each subsidiary ledger exists only as a support to the general ledger. All businesses can benefit from this readiness, but it’s particularly crucial for companies with high transaction volumes and or operate across multiple jurisdictions. A set of well-organized subledgers allows bookkeepers to handle scale.
Subledgers help ensure the accuracy, organization, control, and financial agility a company has over its books. Subsidiary ledgers also help accountants create financial statements as necessary so they can be ready for an audit at any time. Here are some ways that companies of all sizes can use subledgers to assist in bookkeeping. E.g. ABC is a company which does around 75% of their sales on credit; as a result, it has many accounts receivables. This is the principal set of accounts where all transactions conducted within the financial year are recorded. The information for general ledger is derived from the general journal which is an initial book for entering transactions.
They can use subledgers to maintain accuracy and organization in their bookkeeping if the general ledger alone is getting too difficult to manage. Businesses that need more can institute subledger accounting, which is designed to capture more granular details about transactions than those that appear in the general ledger. A business can keep multiple subsidiary ledgers, each with its own purpose and all matching up with the general ledger. For example, the total amount of all your accounts receivables should be the same number as the total on the general ledger. There could be a simple fix as correcting an entry (wrong date or forgetting a credit), enter a missing entry, or making an adjustment journal entry. This is a task that is not to be put off for quarterly reports or annual reports.
Also referred to as ‘subsidiary ledger’, this is a detailed subset of accounts that contains transaction information. For large scale businesses where many transactions are conducted, it may not be convenient to enter all transactions in the general ledger due to the high volume. In such cases, individual transactions are recorded in ‘subsidiary ledgers’, and the totals are transferred to an account in the general ledger. This account is referred to as the ‘Control account’, and account types that generally have a high activity level is recorded here. Subsidiary ledgers can include purchases, payables, receivables, production cost, payroll and any other account type. Each subsidiary ledger is focused on a specific category of financial transactions, such as customer accounts, sales accounts, fixed asset transactions, or bank transactions.
The trial balance, though, has no connection with the general ledger (it is a statement or worksheet where all the records of debit and credit entries are stored in two equal columns). It enlists the financial accounts companies set up for recording transactions. Since sub-ledgers relate to the general ledger, they don’t need a chart of accounts.