The general ledger is a company’s main book of accounts, while the subsidiary ledger is a subaccount of a general ledger account that provides details for one of those line items. Subledgers and general ledgers have a dependent relationship, but the difference between them lies in the way they are used. All businesses must maintain a system of accounting, and public corporations use a double-entry accounting system that meets national and international standards. Subsidiary and general ledger accounts check and balance each other, and the total of the transactions in the subsidiary ledger must equal the amount on the corresponding line in the general ledger account for the accounts to remain in balance.
The difference between subsidiary and general ledger accounts is functional. A company’s general ledger is the first-level book of accounts that make up its accounting system. The subsidiary ledger is a subaccount of a general ledger account. General ledgers record line item transactions in major account categories. Subledgers provide the details for one of those order lines, creating a separate mini account for the item that can track transactions that are specific to that item.
All businesses must maintain a system of accounting by government agencies. Smaller businesses keep books so that tax authorities can collect sales, employment, and income taxes on a regular basis. Large public corporations have these responsibilities and are also required by government securities regulators to maintain a system of accounting to report the financial condition of the corporation to investors. Although non-public companies can technically maintain any type of accounting system that accurately reflects income and expenses, many adjust their systems to the standards set by public corporations. Public corporations use a double-entry accounting system that meets standards set by national and international accounting standards review boards.
Double-entry bookkeeping is a system that tracks seven types of accounts:
estate
passive
income
bills
losses
owner’s equity
These accounts are collectively called the general ledger. The general ledger maintains general accounts that fall into all seven account categories. For example, companies often have general ledger accounts for fixed assets, current assets, current liabilities, long-term liabilities, sales revenue, and administrative expenses. Entries are made to these accounts by clearing debit and credit entries.
Since general ledger accounts are first-level accounts that can contain subcomponents, subledgers are used to provide substantive detail to an account line. Subledger and general ledger accounts have a dependent relationship, but the way a person manages the two types of accounts and enters information is the same. The difference between subsidiary and general ledger accounts lies simply in the way the accounts are used.
For example, a wholesaler would generally maintain a sales revenue account. This account is a top-level general ledger account, as it collects all sales information by period. However, the wholesaler likely has customer accounts that make up the sales figures and can be listed in the general ledger by placing each customer on a separate line with the total amount of sales for each customer for the year. In the accounting system, the general ledger sales account might have attached subledgers for each customer. Individual transactions that are specific to that customer will be posted to the customer’s subledger account as a detail of the total amount posted to the ledger.
Subsidiary and general ledger accounts check and balance each other. The general ledger line itemizing the subledger is called the control account. The total of the transactions in the subsidiary ledger must equal the amount on the corresponding line in the general ledger account for the accounts to remain in balance.
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