General Ledger Vs Sub-Ledger

What is General Ledger?

A general ledger is a bookkeeping ledger in which accounting data are posted from journals and
aggregated from subledgers, such as accounts payable, accounts receivable, cash management, fixed
assets, purchasing and projects

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 sub-
ledger accounts. Thus, we also refer to the general ledger as the ‘set of master accounts’ since it
contains all the information in the sub-ledgers.

The general ledger is divided into several accounts, called master accounts or control accounts, all of
which are organized via a chart of accounts. Examples of accounts you may find in a general ledger
include banking, accounts receivable, accounts payable, sales, revenue, and fixed assets.

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.

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In accounting software, a general ledger sorts all transaction information through the accounts. Also,
it is the primary source for generating the company’s trial balance and financial statements. The
ledger’s accuracy is validated by a trial balance, which confirms that the sum of all debit accounts is
equal to the sum of all credit accounts.

General Ledger (GL) accounts contain all debit and credit transactions affecting them. In addition,
they include detailed information about each transaction, such as the date, description, amount, and
may also include some descriptive information on what the transaction was.

General Ledger Account

A general ledger account (GL account) is a primary component of a general ledger. A GL account
records all transactions for that account. The transactions are related to various accounting elements,
including assets, liabilities, equity, revenues, expenses, gains, and losses.

For example, cash and account receivables are part of the company’s assets. On the ledger, each of
the assets will have its own GL account.

Link to Balance Sheet and Income Statement

A General Ledger (GL) records all the transactions that affect a company’s accounting elements, such
as Assets, Liabilities, Equity, Expenses, and Revenue, it is the data source used to construct the
Balance Sheet and the Income Statement.

General Ledgers and Double-Entry Bookkeeping

General ledgers typically uses the double-entry accounting method in which each entry into an
account requires that we put an equal and opposite entry into another account(s) - The total debit
amount must always be equal to the total credit amount.

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What is Sub-Ledger or Subsidiary Ledger?
For a large organization, a general ledger can be extremely complicated. In order to simplify the audit
of accounting records or the analysis of records by internal stakeholders, subsidiary ledgers can be
created.

A subsidiary ledger (sub-ledger) is a sub-account related to a GL account that traces the transactions
corresponding to a specific company, purchase, property, etc. If a GL account includes sub-ledgers,
they are called controlling accounts. It is a detailed report of accounts that consists of transaction
information.

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

If the transactions are recorded in a sub-ledger 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 sub-ledger can include all business transaction details
such as purchases, receivables, production costs, payables, and payroll.

For example, Companies X, Y, and Z are the clients of Company A. For accounting purposes,
Company A may create three sub-ledger accounts corresponding to its three clients under account
receivables (controlling accounts) to trace the amounts expected to be received from each client.

Sub-ledgers serve as valuable tools in accounting, offering more detailed insights into specific
accounts or categories.

Here are some of the subsidiary ledger examples:

 Vendor Accounts Sub-ledger - 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 Sub-ledger - records and organises individual customer transactions. It
encompasses crucial information such as sales, payments received, and outstanding balances,
providing a comprehensive overview of customer interactions
 Fixed Assets Sub-ledger - acts as a repository for precise details regarding a company’s fixed
assets. This subledger tracks acquisitions, disposals, depreciation, and other adjustments,
ensuring accurate and up-to-date information about the company’s tangible assets.
 Bank Accounts Sub-ledger - assumes responsibility for documenting and monitoring
transactions and balances linked to various bank accounts. It captures details like deposits,
withdrawals, transfers, etc.
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By maintaining these sub-ledgers, 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.

Why do businesses use sub ledgers?

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.

 Accuracy and organization

Companies use subledgers to maintain accuracy and organization in their bookkeeping if the
general ledger alone is getting too difficult to manage with high transaction volumes and
multiple revenue streams

 Scale and control

Transaction-level data can be quite comprehensive, so using multiple databases to organize
and store them is necessary so as not to let your general ledger fall into chaos

 Audit readiness
Accountants never know when their company might be audited. It’s best to always be ready to
provide thorough transaction-level data to authorities in accordance with the Generally
Accepted Accounting Principles (GAAP) established by the Financial Accounting Standards
Board (FASB). All businesses can benefit from this readiness, but it’s particularly crucial for
companies with high transaction volumes and or operate across multiple jurisdictions.

 Financial agility and insight

Finance teams need to be able to quickly provide detailed information in documents like the
income statement, balance sheet, and cash flow statement. Providing this insight quickly is
easier when financial statements are well-organized and properly categorized into subledgers.

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Sub-Ledger vs General Ledger: Key Differences
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

General Ledger Sub-Ledger

It is linked to the general ledger where the
All the accounting transactions are recorded
1 transactions of intermediary sets of accounts are
in this set of master accounts.
recorded.
Example: Cash management, accounts Example: Vendor accounts, fixed assets, and
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receivable, and accounts payable customer accounts.
All the transactions that are recorded here All the transactions that are recorded here have
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have different characteristics. common characteristics.
4 Only one ledger account can be present. Multiple sub ledger accounts can be present.

5 Limited volume of data can be recorded. Large volume of data can be recorded.
The total of the general ledger may not The total of sub ledger should always match with
6 always match with the line items present in the line item amount present in the general
the sub ledger. ledger.
7 It controls sub ledger. It is a subset of the general ledger.
The trial balance is prepared with the help of The trial balance is not prepared with the
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general ledger. assistance of the sub ledger.

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.

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Best practices to follow when using general ledger

 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 a lot of time.

 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

 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

 Don’t miss out to balance the records - the total of the subledger account should always
match with the total of the general ledger account

 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.

 Consider shifting to an automated accounting system - 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

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