A general ledger focuses on the main categories of accounts.
The difference between subsidiary and general ledger accounts is functional. A company’s ledger is the first-level account book that makes up its accounting system. The subsidiary ledger is a subaccount of a general ledger account. The general ledger records line item transactions across major account categories. Subledger ledgers provide the details of one of these line items, creating a separate mini account for the item that can track transactions specific to that item.
Subledgers control the details of a general ledger.
All companies are required to maintain an accounting system by government agencies. Small businesses keep books so taxing authorities can collect sales, employment, and income taxes on a regular basis. Major public companies have these responsibilities and are also required by government bond regulators to maintain a system of accounting to inform investors of the company’s financial position. While private companies can technically maintain any type of accounting system that accurately reflects income and expenses, many tailor their systems to the standards set by public companies. Public companies use a double-entry accounting system that meets the standards set by international and national accounting standards review boards.
Double-entry bookkeeping is a system that tracks seven types of accounts:
assets liabilities income expenses gains losses equity
These accounts are collectively called the 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. Postings are made to these accounts by clearing debit and credit notes.
Because general ledger accounts are top-level accounts that can contain subcomponents, subsidiary ledgers are used to provide supporting details for an account line item. Sub and general ledger accounts have a dependency relationship, but the way a person manages both types of accounts and enters information is the same. The difference between subsidiary accounts and ledger accounts lies simply in the way the accounts are used.
For example, a wholesaler would normally maintain a sales revenue account. This account is a top-level general ledger account because it collects all sales information by period. However, the wholesaler likely has customer accounts that make up the sales figures and can be included in the general ledger, putting each customer on a separate line with each customer’s total sales amount for the year. In the accounting system, the general ledger sales account may have subledgers attached to it for each customer. The individual transactions specific to that customer would be recorded in the customer’s subsidiary ledger account as a detail of the total amount recorded in the general ledger.
Subsidiary and general ledger accounts check and balance each other. The general ledger line itemizing the subsidiary ledger is called the control account. The total of transactions in the subledger must equal the value of the corresponding line in the ledger account for the accounts to remain balanced.