For things to move forward and be coherent, steps must be followed. And, accounting is no exception. If a company realises transactions everyday and high volumes at that, then it would be hard to keep track of them if they are not recorded. It is important because then a company can see their debt owed, their
What is a subledger?
A subledger, also known as a subsidiary ledger, is a subset of accounts that contains transaction information and is the subset of the general ledger in the accounting. The subset ledger is used for account categories with a huge amount of transactions. It is preceded by sub because it is a subcategory of the general ledger.
How does a subledger work?
Once you’ve done your business activities, known as transactions, you record them in your subsidiary ledger. Once you have posted your journal entries in your subledger accounts, you follow it up with their summary and their posting to a control account in your general ledger. These steps are used to avoid cluttering the general ledger and to produce your company’s financial statements.
You must keep in mind that a subledger is only used for companies with big and numerous sales. Thus, a subledger is not useful for small businesses.
Here are a few examples of what is considered as subledgers:
- Accounts payable ledger,
- accounts receivable ledger,
- fixed assets ledger,
- inventory ledger,
- purchases ledger.
What is a general ledger?
A general ledger is an account that collects and assembles the balances of every related subsidiary ledger accounts. It is comparable to a leading account as it is the principal set of accounts.
Journal entries are only added to the general ledger after they have been added to the subsidiary ledger. These entries follow the summing up phase of the balances of every related subsidiary ledgers account.
These categories are examples that general ledger accounts usually fit into:
- Assets: accounts receivable, bank, fixed assets, etc.,
- liabilities: accounts payable, interest payable, loan, etc.,
- equity accounts: like share capital
- income accounts: such as sales, interest income, etc.,
- expense accounts: like purchases.
Difference between subledger and general ledger
Though they both involve journal entries, there are still some main differences to consider. You can find them below:
The general ledger is the master ledger that encompasses all the subsidiary ledgers accounts.
The subsidiary ledger is where you first post your journal entries. It categorizes those entries and prepares them for the general ledger.
2. Quantity of entries
Because the general ledger and the subledger have a different number of accounts, the entries will be different.
The entries for the general ledger are lower, seeing as they are the balances and total of the subsidiary ledger.
However, the entries to a subsidiary ledger are higher because it is where you first post your journal entries.
3. Order of posting
Balances are posted in the general ledger only after they have been posted to the subsidiary ledger and are summed up and balanced.
This is where you’d post your journal entries for each transaction. It takes place before the entries into the general ledger. Posted to the subsidiary ledger are the amounts of entries. This step is important because the
4. Transfer of balances
The balances of subsidiary ledgers are posted to their respective general ledger.
Whereas, the balances of the general ledger are posted to the trial balance to prepare financial statements.
5. Trial balance
The accounts of the general ledger form part of the trial balance.
The subsidiary ledgers accounts are closed and collected in the general ledger accounts and are not part of the trial balance.
6. Purpose of the general and subsidiary ledgers preparations
The general ledger is prepared to regroup every account balance into the general ledger. It is done to prepare the trial balance.
The purpose and use of a subsidiary ledger are to provide records of a company’s financial transactions. And, because there are many per month or years, the subsidiary ledger helps track, collect, and categorize data of those transactions that are posted into the journal. It represents details of and specific data of those transactions.
You may find that the general ledger deals with accounts payable and accounts receivable, bank accounts, and more.
While subledger is everything creditor and debtor accounts. They are usually individual accounts.
After you’ve read some of the main differences, here is a recap:
|General ledger vs Subledger|
|The general ledger is the master account of all recorded transactions.||The subledger is the intermediary step where transactions are recorded before being moved to the general ledger.|
|Nature of the ledger|
|The General Ledger is handled and kept by a company||The sub ledgers relate to the general ledger.|
|Amount of transactions contained|
|The General ledger receives transactions that have already been summarised in the sub ledgers. Therefore, the amount is restricted.||The subledger on the other hand is where every transaction is first recorded. So, the amount is higher.|
I hope you will now know how accounting and the importance of understanding the purpose of each step. Feel free to leave us a comment about what you think below. Thank you for reading!