General Ledger vs Subledger: What’s the Difference?

Introduction

Ledgers are used to record financial information and transactions as per the accounting principle. The principal set of accounts is managed by the general ledger, whereas, a subledger is the subset of a general ledger. Since we cannot record every transaction in the general ledger, we use a subledger to record information on different accounts. This blog discusses the nitty-gritty of ledger and sub ledgers in accounting and how advanced record to report software helps maintain ledger posting accuracy.

What is a general ledger?

The general ledger is a set of accounts that consists of transaction records of all principal accounts. It consists of all the entries of debit and credit for a particular period in different accounts.

Another feature of the general ledger is that it records the transactions that take place in the subledger accounts. Thus, we also refer to the general ledger as the ‘set of master accounts’ since it contains all the information in the subledgers.

Common Examples of General Ledger

The following are examples of accounts commonly found in a general ledger:

1. Cash: This account encompasses the monitoring of the company’s cash transactions, encompassing both cash received and disbursed.
2. Accounts Receivable: This account entails the documentation of the amounts owed to the company by its customers for goods or services that were provided on a credit basis.
3. Accounts Payable: This account involves the tracking of the amounts the company owes to its suppliers or vendors for goods or services received on credit.
4. Inventory: This account signifies the valuation of the company’s goods held for the purpose of sale.
5. Fixed Assets: This account encompasses long-term assets such as buildings, machinery, equipment, and vehicles.
6. Accumulated Depreciation: This account represents the cumulative depreciation of the company’s fixed assets.
7. Sales: This account records the revenue generated from the sale of goods or services.

What is a subledger?

Subledger, which is also known as a subsidiary ledger, is a detailed report of accounts that consists of transaction information.

Subledger is also known for being the subset of the general ledger in the accounting world. In other words, we can say that the subledger is a part of the general ledger. 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). 

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.

Common Examples of Subledger

Subledgers serve as valuable tools in accounting, offering more detailed insights into specific accounts or categories. Here are some subsidiary ledger example:

Vendor Accounts Subledger: This subledger meticulously tracks and maintains records of transactions and balances associated with vendor accounts. It includes comprehensive details of purchases, payments, and any outstanding amounts owed to vendors.

Customer Accounts Subledger: The customer accounts subledger plays a pivotal role in recording and organizing individual customer transactions. It encompasses crucial information such as sales, payments received, and outstanding balances, providing a comprehensive overview of customer interactions.

Fixed Assets Subledger: The fixed assets subledger acts as a repository for precise details regarding a company’s fixed assets. It encompasses buildings, equipment, vehicles, and more. This subledger tracks acquisitions, disposals, depreciation, and other adjustments, ensuring accurate and up-to-date information about the company’s tangible assets.

Bank Accounts Subledger: The bank accounts subledger assumes responsibility for documenting and monitoring transactions and balances linked to various bank accounts. It captures intricate details such as deposits, withdrawals, transfers, and reconciliations, ensuring a comprehensive overview of the company’s financial interactions with banking institutions.

By maintaining these subledgers, businesses can access more granular and specific financial information, enabling enhanced control, analysis, and comprehensive reporting of their financial data.

Some more examples of subsidiary ledgers are the accounts payable ledger, accounts receivable ledger, fixed assets ledger, inventory ledger, and purchases ledger.

Subledger vs General Ledger: What are the key differences?

With the help of this table, we will explain the difference between general ledger and sub ledger in accounting:

Best practices to follow when using general ledger

A company needs to review its general ledger regularly to keep track of all the accounts that they currently handle. This is one of the most important practices that one needs to follow when handling a general ledger account.

Similarly, the following are some of the best and most important practices you should follow to ensure that your general ledger is created accurately:

1. Eliminate small-balance accounts

General ledger accounts are designed to handle a high volume of transactions, resulting in a high proportion of accountants’ time going into reviewing and matching these accounts monthly. Over a period of time, some general ledger accounts will no longer be required, due to the low amount of transactions. Thus eliminating them can save your employees and your business a lot of time.

2. Reducing the number of general ledger accounts

The number of general ledger accounts is supposed to grow over time as new revenue and expense categories get added to the accounts. Listing more than the desired number of accounts in the general ledger can lead to wrong accounting inputs. Also, adding too many accounts to the journal can cause difficulties for the management to identify the required numbers. Thus, it is recommended to merge similar accounts over time. This will help provide effective information on the different accounts.

3. Limit employees’ access to add entries to the journal

It is highly recommended to limit employees’ access to add journal entries to the ledger and subledger. Too many employees adding line items can lead to confusion and difficulties in the review and approval processes.

Best practices to follow when using subledger

If you are among those businesses that still use manual accounting methods, then there are a few things you need to consider when using a subledger. Let’s check them out:

1. Don’t miss out to balance the records

You must remember that the total of the subledger account should always match with the total of the general ledger account. For example, if you are working on multiple subledger accounts that currently equal the value of $20,000, then the balance of the general ledger account should also show a total of $20,000. In case the totals do not match, consider recalculating and checking the figures to understand the reason for the difference, and rectify any errors.

2. Don’t forget to close your entries after reconciliation

After all the subledger accounts are reconciled, make sure to close the entries in the books or the entry journals so that the accounting cycle gets completed. You must also reverse any incorrect or duplicate entries made in the journal. However, these manual data entries may include errors and if you keep physical records, it becomes even more difficult to maintain them, as your company grows, it’s better to switch to digital options and moreover, automated bookkeeping.

3. Consider shifting to an automated accounting system

We understand that it must be tiring to manually maintain a voluminous general ledger. An automated accounting system eliminates the need to manually enter data into the accounting books. This makes the whole process easier and less error-prone. Also, the automated system can calculate and add the interest, amortization, and depreciation values directly to the system.

Conclusion

Both general ledger and subledger accounts are used to record financial transactions. 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. 

Both the general ledger and the subledger play an essential role in the world of accounting. Properly managing the ledger accounts is crucial to meeting financial reporting and regulatory obligations. It also helps build trust with your customers and other stakeholders.

Bookkeeping is an important part of the accounting process since it records every transaction and reports all activities that impact a business’s financial performance. As an organization grows, it’s better to switch towards digital and automated accounting systems to streamline your workflows with minimized cost and real-time reporting.

HighRadius’ automated record to report solution uses AI-based anomaly detection, saving your teams from manual work during the month-end close. Connect with our experts to learn how our account reconciliation platform identifies and resolves variances for general ledger accounts through configurable matching criteria and algorithms.

FAQs

1. Are the general ledger and general journal the same?

The general ledger consists of the summary of every transaction that took place in the accounts, whereas the general journal contains the original set of entries for low-volume transactions. 

2. What are the four sections mentioned in a general ledger?

The four sections in a general ledger are financial transactions, accounting periods, a chart of accounts, and account balances.

3. Which comes first general ledger or the subsidiary ledger?

The subsidiary ledger comes first since the balances of a general ledger are posted after entries are made in the subledger accounts.

4. Is accounts receivable a subledger?

Yes, the accounts receivable is a subledger since all the credit sale accounts of a business are recorded in the same. It is used to keep track of all the information on the amounts invoiced and memos issued to the customers.

5. How do you reconcile a sub-ledger to a general ledger?

Reconciling a subledger to a general ledger involves comparing balances, verifying transactions, making adjustments, and documenting the process to ensure accuracy and consistency in financial records.

6. Can a general ledger have sub ledgers?

Subledger is also known for being the subset of the general ledger in the accounting world. In other words, we can say that the subledger is a part of the general ledger.

7. What are the two purposes of sub ledger accounting?

Subledger accounting has two purposes:

1. Detailed Tracking: It enables precise monitoring of specific accounts or categories, providing transaction details and balances for analysis and management.
2. General Ledger Integration: Subledgers feed data into the general ledger, ensuring accurate financial reporting by summarizing and consolidating information.

These purposes enhance tracking, management, and reliable reporting in subledger accounting systems.

8. What are the benefits of sub ledger?

A subledger helps organize the general ledger by retaining vast amounts of ledger-certified data, including any required manual journal entries. This allows you to keep the General Ledgers ‘light’ and feed the appropriate data to analysis and reporting tools.