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A corporate accountant typically records operating transactions in a ledger, a type of accounting document. Detailed transaction information is registered in a subsidiary ledger, then all subsidiary ledger data are reported in a general ledger at the end of a quarter or year. General ledger and subsidiary ledger (sub-ledger) accounting methods help an accountant or bookkeeper record a firm's financial information.
What Is a Ledger?
A ledger is a financial summary that lists a corporation's operating transactions in two columns: debits and credits. A firm's accountant or bookkeeper makes journal entries to record these transactions. In other words, she debits and credits accounts. Types of accounts include asset, liability, expense, revenue and equity.
A corporate accountant debits an expense or asset account to increase its balance, crediting the account to reduce its amount. The opposite is true for revenue, equity and liability accounts.
What Is the Subsidiary Ledger?
A subsidiary ledger is the first document in which a bookkeeper records corporate transactions. In a sense, a subsidiary ledger is the pillar of accounting information in modern economies because all financial reports are based on subsidiary ledger data. A bookkeeper makes journal entries in a subsidiary ledger.
For example, a firm issues a $1,000 check to pay the monthly electricity bill. A bookkeeper debits the utilities expense account for $1,000, and she credits the cash (asset) account for the same amount.
What Is a General Ledger?
A general ledger includes information from related subsidiary ledgers. For instance, the bookkeeper records the $1,000 utilities expense in Supplier A's subsidiary ledger. The firm has five suppliers from which it purchases electricity and gas for its operating activities.
Subsidiary ledgers for Supplier B, Supplier C, Supplier D and Supplier E indicate payable amounts of $2,000, $4,000, $1,000 and $3,000, respectively. The company's utilities expense in the general ledger, meanwhile, shows a total of $11,000.
Subsidiary Ledger vs. General Ledger Accounting
A corporate accounting clerk typically records transactions in subsidiary ledgers. A general ledger, on the other hand, serves primarily for reporting processes. The clerk makes journal entries based on the transaction and applies accounting principles to ensure that recorded amounts are accurate. A bookkeeper also makes adjustments at the end of a period to record correct amounts for prepaid expenses.
To illustrate this in the general ledger vs. sub ledger, consider that a firm pays $6,000 in insurance premiums for six-month coverage. At the end of the first quarter, only $3,000 in insurance expense must be recorded. The bookkeeper credits the prepaid insurance account (asset) for $3,000 and debits the insurance expense account for the same amount.
International financial reporting standards, or IFRS, and U.S. generally accepted accounting principles, or GAAP, require a company to issue four general ledger reports. These reports, also called financial statements, include a balance sheet, statement of income, statement of cash flows and statement of retained earnings.
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.