Subledger

What is Subledger in Accounting?

Subledger is a subset of various general ledgersGeneral LedgersA general ledger is a book of accounts that records the everyday business transactions in separate ledger accounts. The entries made in a ledger can be verified by getting a NIL balance on summing up all the ledger account amounts in the trial balance.read more used for accounting and may contain all accounts receivable, accounts payable, prepaid expenses, or fixed assets related to financial transactions. In a big organization, it is very difficult to maintain all transactions in the common ledger; therefore, subledger is the best possible option to record entire transactions.

Subledger

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List of 7 Types of Subledger in Accounting

Below are the types of Subledger in Accounting

Types of Subledger in Accounting

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  1. Account Receivable Ledger – It records all the credit sales transactions and payments received from a customer against credit sales.
  2. Accounts Payable Ledger Accounts Payable LedgerThe Accounts Payable Ledger, also known as the creditor's ledger, is a subsidiary ledger that lists the details of the company's different suppliers or vendors, as well as their account balances, highlighting the outstanding amount payable by the company.read more It records all the credit purchases and payments to creditors.
  3. Fixed Assets Ledger – It records all transaction data for individual fixed assetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more like Land, Building, and Furniture & Fixture or any other fixed assets and depreciation charged on fixed assets.
  4. Inventory Ledger – Inventory ledger may contain transaction about the receipt of raw material, Movement of stock, conversion into finished stock, scrap, or absolute inventory.
  5. Purchase Ledger Purchase ledgerPurchase LedgerPurchase ledger is the ledger in which all the accounting transactions related to the purchase of goods or services are recorded. The purchase ledger reflect the balances of purchase creditors and suppliers including amount due to them.read more records all types of purchases, whether it has paid or to be paid.
  6. Sales Ledger – Sales ledgerSales LedgerA sales ledger is a ledger entry that records any sale in the book of records, even if the payment is received or not yet received. It records the sales and the cash when received and the amount owed to the business.read more records all types of sales, whether it is cash sales or credit salesCredit SalesCredit Sales is a transaction type in which the customers/buyers are allowed to pay up for the bought item later on instead of paying at the exact time of purchase. It gives them the required time to collect money & make the payment. read more.
  7. Cash Ledger – In this ledger company has to record all types of cash transactions, whether it is cash sales, cash purchase, and expenses paid in cash.

Examples of Subledger

Below are examples of Subledger in accounting.

Examples of Subledger

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#1 – Trade Receivable Ledger

Below is the trade receivableTrade ReceivableTrade receivable is the amount owed to the business or company by its customers. It is also known as account receivables and is represented as current liabilities in balance sheet.read more ledger of Apple Inc. where the company has an opening balance of $ 10,000, Company sold goods of $ 10,000 on 15th June’19 and of $ 5,000 on 22nd Oct’18, Apple Inc received money of $ 7,000 from its debtors on 15th Jan’18, one of its customer returned material of $ 1,000 on 20th June’19 and one of its customer fails to make a payment due to which company has to write offWrite OffWrite off is the reduction in the value of the assets that were present in the books of accounts of the company on a particular period of time and are recorded as the accounting expense against the payment not received or the losses on the assets.read more $ 500. After recording, all these transaction companies have a closing balance of $12,000 as of 31st Dec’2018, which the company will receive from its debtors in the coming year.

Sub-Ledger Example 1

#2 – Sales Ledger

Below is the sales ledger of Apple Inc for the year 2018. In sales, the ledger company records its cash sales and credit sales. On 10th Jan’2018 company has made cash sales of $ 5,000, credit sales of $10,000 on 15th June’2018, one of its customer(John) has returned goods of $1,000 to Apple inc on 20th June’2018 and Apple Inc has given cash discountCash DiscountCash discounts are direct incentives and discounts provided by any company to their customers in exchange for paying their bills on time or before the due date. This is a common practice, and the discount may differ from one company to the next depending on the terms and conditions.read more of $2,000 to its customer. After the recording of all these accounting transactions, the company has net sales of $ 12,000, which the company has transferred into Profit & loss a/c.

Sub-Ledger Example 2

#3 – Fixed Assets Ledger

Below is the fixed assets ledger of Apple Inc for the year 2018. The company has purchased land and machinery of $ 20,000 and $10,000 respectively on 1st Jan’2017. Machinery has a useful life of 10 Years. Therefore, the company has charged depreciation of $1,000 for the year 2017. After the recording of all the transaction company has a closing balance of fixed assets of $ 29,000, which the company will show in the Balance sheet under Fixed Assets. Similarly, Apple Inc has charged depreciation of $1,000 for the next year also i.e., 2018. Therefore, the closing balance of fixed assets will be $28,000 at the end of the year 2018.

Sub-Ledger Example 3

Advantages of Subledger

Below are the advantages of Subledger:

  1. Due to various ledgers maintain for different – different transactions, it provides up to date information of specific accounts.
  2. It shows the level of control a company has regarding financial informationFinancial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more.
  3. It helps to find out any error or wrong entry done in the system because of multiple ledgers maintained.
  4. It provides limited access to company employees and restricts information sharing like accounts receivableAccounts ReceivableAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.read more manager has access to the only receivable ledger, not any other ledger.
  5. This accounting systemAccounting SystemAccounting systems are used by organizations to record financial information such as income, expenses, and other accounting activities. They serve as a key tool for monitoring and tracking the company's performance and ensuring the smooth operation of the firm.read more makes the division of work and responsibility between employees. One employee can post an entry in accounts receivable at the same time others can post in accounts payable.

Disadvantages of Subledger

Below are the disadvantages of Subledger:

  1. A subledger accounting system is not suitable for medium and small enterprises; it is suitable only for large business organizations with a large number of transactions.
  2. This system of accounting is very expensive because it requires specific software for maintaining large no. of subledgers and required a large number of manpower for recording transactions.
  3. This accounting system is very complex because of multiple ledgers and large no. of manpower.
  4. Lack of coordination between employees of the company.
  5. Sometimes it fails to provide complete information in one place because transactions are maintained in different –different ledgers.
  6. It requires knowledge and skilled manpower because one incorrect transaction may create problems in another ledger also.

Conclusion

Subledger is a subdivision of a general ledger where the company can record its transactions in different – different subledger on the basis of their nature of transactions. It is very useful for a big organization where no. of transactions are very high because it provides control to the management and provides specific and real-time information, but at the same time it is very expensive because of its structure and manpower requirement due to this it is not feasible for small and medium organizations.

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