Key Difference – General Ledger vs Sub Ledger
Recording financial information is a lengthy and time-consuming process, and its end result is the preparation of year-end financial statements. A business conducts many transactions within an accounting year, and these should be recorded in different accounts according to corresponding accounting standards. General ledger and sub ledger are such accounts that record business transactions. The key difference between general ledger and sub ledger is that while general ledger is the set of master accounts where transactions are recorded, sub ledger is an intermediary set of accounts that are linked to the general ledger. The relationship between these two is that multiple sub ledgers are attached to the general ledger.
What is a General Ledger?
This is the principal set of accounts where all transactions conducted within the financial year are recorded. The information for general ledger is derived from the general journal which is an initial book for entering transactions. General ledger contains all the debit and credit entries of transactions and is separated with classes of accounts. There are five main types of classes or accounts as follows.
Long term and short term resources that provide economic benefits
E.g. Property, cash and cash equivalents, accounts receivables
Long term and short term financial obligations that should be settled
E.g. Loan repayment, interest payable, accounts payable
Securities that represent the owner’s interest in the company
Funds received as a result of conducting business transactions
E.g. Revenue, investment income
Economic costs that a business incurs through its operations to earn revenue
E.g. Cost of sales, marketing expenses, administration expenses
What is a Sub Ledger?
Also referred to as ‘subsidiary ledger’, this is a detailed subset of accounts that contains transaction information. For large scale businesses where many transactions are conducted, it may not be convenient to enter all transactions in the general ledger due to the high volume. In such cases, individual transactions are recorded in ‘subsidiary ledgers’, and the totals are transferred to an account in the general ledger. This account is referred to as the ‘Control account’, and account types that generally have a high activity level is recorded here. Subsidiary ledgers can include purchases, payables, receivables, production cost, payroll and any other account type.
E.g. ABC is a company which does around 75% of their sales on credit; as a result, it has many accounts receivables. Due to the high volume, it is not practical to record all individual receivables transactions in the general ledger; ABC will create individual accounts for each receivable in the sub ledger to record transactions and transfer the balances of all accounts to a single account that collectively represent the total receivables.
This structure allows the company to maintain accounting information at a summary level (in the General Ledger) and at a detailed level (in Sub Ledgers). Information on both levels are important in making various decisions; therefore, the records should be accurate and complete.
What is the difference between General Ledger and Sub Ledger?
General Ledger vs Sub Ledger
|General ledger is the set of master accounts where transactions are recorded.||Sub ledger is an intermediary set of accounts that are linked to the general ledger.|
|Nature of the Ledger|
|A single general ledger is maintained by a company.||Many sub ledgers are linked to the general ledger.|
|Volume of Transactions|
|General Ledger contains a limited volume of transactions since it is a summarized format.||Sub ledger contains large volume of data due to its detailed reporting nature.|
Summary – General Ledger vs Sub Ledger
While manually completed earlier, many companies use automated accounting packages that require minimum human intervention to prepare financial accounts at present. This is time-saving and reduces the possibility of human errors. The manner of recording transactions in both ledgers is similar, the only difference between general ledger and sub ledger is that accounts with bulk transactions are recorded in sub ledgers before transferring their totals into the general ledger.
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