Accounting accuracy is the foundation of organizational stability and development and that is why an accountant needs to know the difference between the General ledgers Vs Sub-ledger. Generally, one general ledger (a single database of transactions) is adequate to maintain record of organization for new firms and startups. Every business transaction and obligation is documented in the company’s complete ledger.
However, if a company grows in complexity and scale, simple ledger accounts may not be able to keep up. There may be many items to organize or sophisticated transactions that cannot be recorded as a single line item in the general ledger. Multiple revenue sources and commitments may need a more complicated accounting system.
Businesses that need it may use sub-ledger accounting, which is designed to capture more precise information about transactions than what appears in the main ledger. A business may have several subsidiary ledgers, each with a distinct purpose and a connection to the main ledger.
Explaining General ledger
A general ledger is the accounting source of truth for a corporation. It is a document or database containing records of all the company’s financial activities, such as accounts payable and accounts receivable. A chart of accounts is used to organize the various accounts known as master accounts or control accounts in the general ledger. A general ledger may include banking, receivables and payables, sales and income, and fixed asset accounts.
In double-entry accounting, each entry made into one account must be accompanied by an entry made into another account that is equal to and opposite of the first account’s entry. This method of accounting is often used in general ledgers. For example, if you get a $500 check, you would debit $500 from cash and credit $500 to accounts receivable.
Explaining a Sub-ledger
As firms expand, it may become impossible and impractical to record all the transaction-specific financial information in the general ledger. If your firm had 2,000 AR transactions in a given month, for instance, your accounting clerk would have to go through each entry to get the total. This might be a huge hindrance when attempting to acquire a quick financial picture of your organization.
Growing organizations need a more intricate system for keeping track of every detail, while yet enabling them to examine the most essential data at a glance. Sub-ledgers, or supplementary ledgers, are the solution. These consolidated ledgers provide additional information on the general ledger’s different master accounts.
So every subsidiary ledger is concerned with a certain kind of financial transaction, including account balances, revenue, fixed assets, and financial, among others. The transactions that are recorded across each subsidiary ledger account are connected to the accounts that are kept in the general ledger. The sum of all the sub ledgers is included into the overall total for the general ledger.
In the above example, all 2,000 AR transactions would be recorded in the customer accounts sub-ledger, and their total would be utilized to compute the accounts receivable balance in the general ledger for the corresponding month.
Last Words ledger Vs Sub-ledger
There are several differences between general ledgers and sub-ledgers, most of which relate to the fact that a sub-ledger is an extra data source to the general ledger. Each subsidiary ledger acts as the only support for the master ledger.
Continue reading on, tothefinance