Subledger
Subledger is the sub-category of the general ledger which separates the transaction into a small similar group. The general ledger shows the total balance of many transactions that happen during the business operation. The total of all general ledgers will become the trial balance and form the financial statement.
Subledger is just the smaller part of the general ledger, they are not part of the chart of accounts or trial balance. For example, accounts receivable is the general ledger that records all transactions related to the sale on credit and cash collected from the customer. At the end of the month, we can see the trail balance of accounts receivable with the amount that customers owe to us. However, we do not know the detailed balance of each customer. So we need to look at the sub-ledger which represents each customer and the transactions related to them. By looking at the sub-ledger, we will be able to know which customers owe us, how much, and how long it has been.
A subledger is an important tool for any business. It tracks the details of specific types of transactions and records what happens in specific categories within a business’s chart of accounts. This information is then totaled up and used to inform the detailed general ledger. This system provides businesses with a more accurate picture of their finances, and it can be used to track detailed transactions in specific areas or to identify trends over time.
Subledgers can also be helpful in auditing or reviewing financial statements, as they provide a more detailed view of where money is being spent. Overall, subledgers are a valuable tool for managing finances and ensuring that businesses have a clear understanding of their financial position.
Type of Subledger
There are many sub-ledger under the general ledger, they provide further detail to support the general ledger. Please check the following accounts:
Accounts Receivable Ledger
Accounts receivable will show on the balance sheet as the total amount to be collected from the customer who purchases on credit. All the credit sale transactions must record through this general ledger. Credit sales will increase the accounts receivable balance while payment collection will decrease the balance. The ending balance represents the amount due from customers
The subledger breaks down this balance into subcategories such as customer name, location, or products. The most common subledger is the balance owed by each customer as it will help accountant to follow up on late payments.
Accounts Payable Ledger
Accounts payable represent the balance that company owes to the suppliers regarding the purchase of goods or services. The credit purchase will increase the payable balance and cash payment will decrease the balance. However, we cannot know the balance that we owe to each supplier as it shows only the total amount.
Subledger of accounts payable will separate the balance by each supplier. Each subledger will represent the balance of one creditor. New credit purchase will allocate to the proper supplier name and it will reduce only when company settles at that specific supplier.
Inventory Ledger
Inventory ledger shows the purchase, sale and write off the inventory balance. Inventory balance increase when company makes a new purchase and it will decrease when they are sold.
The subledger of inventory account will show each type of inventory that currently in the warehouse. Management needs to know the exact quantity of each inventory type, so they can manage the stock and place an order on time. Moreover, the subledger also be able to separate the inventory by location. It will help to arrange the stock movement from one warehouse to another.
Cash Ledger
Cash ledger record all cash in and out of the company. Company makes most of the money from sales while spending most of them on purchasing inventory, payroll, rental, and other operating expenses. It is hard to separate all the cash movement from the cash general ledger. However, cash subledger will be able to separate this kind of cash transaction.
Fixed asset accounts
A subledger of fixed assets is a record of all the long-term physical assets that a company owns. This may include land, buildings, machinery, vehicles, and equipment. The fixed asset subledger provides valuable information about the fixed assets value, location, and depreciation of each asset. This information can be used by managers to make informed decisions about where to allocate resources and how to finance future capital expenditures. In addition, the subledger can be used by auditors to verify the accuracy of the company’s financial statements. As a result, the fixed asset subledger is an important tool for both internal and external reviewers.
Bank Account
A bank account subledger is a record of all the transactions that have taken place in a particular account, providing a detailed history of the account. This information can be useful for both individuals and businesses, as it can help to track spending, identify patterns, and spot any discrepancies. The subledger can also be used to reconcile the account with the bank’s records. Because of this, it is important to ensure that the subledger is accurate and up-to-date. To do this, businesses should regularly review their bank accounts and transactions, and update the subledger accordingly.
Difference Between General Ledger and Subledger
| General Ledger | Subledger |
|---|---|
| It is the master account where record all transactions and balance. | Record only the detailed part of the transaction under each general ledger. |
| There is one account for each category. | There are many subledgers under one general ledger. |
| All transactions are summary together. | Transactions are separate base on each detail subledger. |
| Each general ledger is different from one to another. | Subledger under one general ledger share similarities. |
| Each general ledger has one chart of accounts. | Subledger does not have the chart of accounts. |
| General ledger controls the subledger. | Subledger is a part of the general ledger. |
Advantage of Subledger
- Subledger provides further detail which provides benefit to accountants to prepare management report.
- It provides detailed control over the financial data.
- Management can limit the access right to each employee base on the subledger.
Disadvantage of Subledger
- The subledger is not fit with the small business where it requires a straightforward system.
- This system is too complex for the small company
- Confusing for the employee as it requires many inputs.
- Company ends up paying too much for a system that does not provide benefits to them.
- Hard to control many subledger.