A subledger is a subunit of the general ledger. The subunit contains more detailed information than the general ledger. For example, a company’s general ledger contains line items for each different business activity. The line items representing accounts payable and accounts receivable, however, have subledgers with additional information. These additional ledgers have accounts for each individual or business that owes the company money or has a claim against the company’s assets, respectively.
The use of subledgers creates a cleaner general ledger. Rather than cramming all bits of financial information into a ledger, the use of additional ledgers can help create a better reporting process. Companies often have the ability to create and use as many subledgers as they desire. The only caveat is that each subledger rolls up to the single line item in the general ledger. All figures must balance against the general ledger line item.
The line item in a general ledger representing a subledger is known as a controlling account. The controlling account dictates all information reported in the general ledger line item. This is common in computerized accounting systems. When companies set up a new subledger, they must dictate which controlling account covers the ledger.
Account reconciliations are also easier when a company creates an individual subledger for its financial information. Accountants can separate out which ledgers are prone to mistakes and errors. These individual ledgers are then set up for a monthly reconciliation. The process involves taking the general ledger total and balancing it back to the total from the subledger. Differences between the two require research to discover and correct any problems.
Companies do not face requirements for adding subledgers to their general ledger systems. Using individual ledgers is simply a financial data management system. Breaking out certain information typically helps stakeholders evaluate the company’s financial health. It also provides transparency for lenders and investors looking at the company’s books.
It is possible to have too many subunits of a general ledger. When this happens, a company spends copious amounts of time balancing each individual ledger to the main general ledger. If the individual ledger contains information that does not continue in perpetuity, then the ledger is unnecessary. This will result in reviewing the ledger to ensure no information gets posted there, and the balance is zero each accounting period. Accountants spend more time managing an empty ledger when this happens.