Subledger

What is Subledger in Accounting?

Subledger is a subset of variousgeneral ledgers 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, a subledger is the best possible option to record entire transactions.

• A sub-ledger is a collection of different general ledgers used in accounting and may include all fixed assets, prepaid expenses, and accounts payable associated with financial transactions.
• There are various types of sub-ledgers such as inventory ledger, fixed assets ledger, cash ledger, purchase ledger, and sales ledger.
• Subledgers in accounting provides up-to-date information about the daily activities of the business. However, a subledger system does not apply to small and medium enterprises. 

List of 7 Types of Subledger in Accounting

Below are the types of subledger in accounting:

1. Account Receivable Ledger – Records all the credit sales transactions and payments received from a customer against credit sales.
2. Accounts Payable Ledger – It records all the credit purchases and payments to creditors.
3. Fixed Assets Ledger – Records all transaction data for individual fixed assets like land, building, furniture & fixtures, or any other fixed assets and depreciation charged on fixed assets.
4. Inventory Ledger – The inventory ledger may contain transactions about receiving raw material, stock movement, conversion into finished stock, scrap, or complete inventory.
5. Purchase Ledger - Purchase ledger records all purchases, whether it has been paid or to be paid.
6. Sales Ledger – Sales ledger records all types of sales, whether cash sales or credit sales.
7. Cash Ledger – In this ledger company has to record all types of cash transactions, whether it is cash sales, cash purchases, or expenses paid in cash.

Examples of Subledger

Below are examples of Subledger in accounting.

#1 - Trade Receivable Ledger

Below is the trade receivable ledger of Apple Inc., where the company has an opening balance of $10,000.

The company sold goods for $10,000 on June 15, 2019, and $5,000 on October 22, 2018, and received $7,000 from its debtors on January 15, 2018.

One of its customers returned material of $1,000 on June 20, ’19, and one of its customers failed to make a payment, due to which the company had to write off $500.

After recording all these transactions, the company has a closing balance of $12,000 as of December 31, 2018, which they will receive from its debtors in the coming year.

#2 - Sales Ledger

Below is the sales ledger of Apple Inc for the year 2018. In the ledger, the company records its cash sales and credit sales. For example, on January 10, 2018, the company made cash sales of $5,000 and credit sales of $10,000 on June 15, 2018. In addition, one of its customers (John) returned goods of $1,000 to Apple inc on June 20, 2018, and Apple Inc has given cash discount of $2,000 to its customer. After recording all these accounting transactions, the company has net sales of $12,000, which it has transferred into profit & loss a/c.

#3 - Fixed Assets Ledger

Below is the fixed assets ledger of Apple Inc. for the year 2018. The company purchased land and machinery for $20,000 and $10,000, respectively, on January 1, 2017. Since machinery has a useful life of 10 years, the company has charged a depreciation of $1,000 for 2017. Therefore, after recording all the transactions, the 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 also charged depreciation of $1,000 for the next year, i.e., 2018. Therefore, the closing balance of fixed assets will be $28,000 at the end of 2018.

Advantages of Subledger:

1. Due to various ledgers maintained for different transactions, the subledger provides up-to-date information on specific accounts.
2. It shows the company's level of control regarding financial information.
3. It helps to find any error or a wrong entry done in the system because of the maintained multiple ledgers.
4. It provides limited access to company employees and restricts information sharing. For examples, an accounts receivable manager has access to the only receivable ledger, and not any other ledger.
5. This accounting system divides work and responsibility between employees. For example, one employee can post an entry in accounts receivable while 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 many transactions.
2. This accounting system is costly because it requires specific software for maintaining many subledgers and requires a large workforce to record transactions.
3. This accounting system is complex because of multiple ledgers and the large workforce.
4. Lack of coordination between employees of the company is another disadvantage.
5. Sometimes, it fails to provide complete information in one place because transactions are maintained in different ledgers.
6. It requires knowledge and a skilled workforce because one incorrect transaction may also create problems in another ledger.

Conclusion

Subledger is a subdivision of a general ledger where the company can record its transactions in different subledger depending on their nature of transactions. It is very useful for a big organization where the. Of transactions is very high because it provides control to the management and provides specific and real-time information. Still, it is very expensive at the same time because of its structure and workforce requirements. Due to this, it is not feasible for small and medium organizations.

Frequently Asked Questions (FAQs)

Recommended Articles

This has been a guide to Subledger and its definition. Here we discuss types and examples of subledger in accounting and their advantages and disadvantages. You may learn more about our articles below on accounting –

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