What is Subledger in Accounting?
Subledger is a subset of various general 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, subledger is the best possible option to record entire transactions.
List of 7 Types of Subledger in Accounting
Below are the types of Subledger in Accounting
- Account Receivable Ledger – It records all the credit sales transactions and payments received from a customer against credit sales.
- Accounts Payable Ledger – It records all the credit purchases and payments to creditors.
- Fixed Assets Ledger – It records all transaction data for individual fixed assets like Land, Building, and Furniture & Fixture or any other fixed assets and depreciation charged on fixed assets.
- Inventory Ledger – Inventory ledger may contain transaction about the receipt of raw material, Movement of stock, conversion into finished stock, scrap, or absolute inventory.
- Purchase Ledger – Purchase ledger records all types of purchases, whether it has paid or to be paid.
- Sales Ledger – Sales ledger records all types of sales, whether it is cash sales or credit sales.
- 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.
#1 – Trade Receivable Ledger
Below is the trade receivable 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 off $ 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.
#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 discount 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.
#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.
Advantages of Subledger
Below are the advantages of Subledger:
- Due to various ledgers maintain for different – different transactions, it provides up to date information of specific accounts.
- It shows the level of control a company has regarding financial information.
- It helps to find out any error or wrong entry done in the system because of multiple ledgers maintained.
- It provides limited access to company employees and restricts information sharing like accounts receivable manager has access to the only receivable ledger, not any other ledger.
- This accounting system 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:
- 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.
- 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.
- This accounting system is very complex because of multiple ledgers and large no. of manpower.
- Lack of coordination between employees of the company.
- Sometimes it fails to provide complete information in one place because transactions are maintained in different –different ledgers.
- It requires knowledge and skilled manpower because one incorrect transaction may create problems in another ledger also.
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.
This has been a guide to Subledger and its definition. Here we discuss types and examples of subledger in accounting along with advantages and disadvantages. You may learn more about our articles below on accounting –