General ledger and subsidiary ledger

The space or register where journal entries are recorded is called accounting journal. We’ll discuss the following two types of journals in this chapter:

  • General ledger
  • Subsidiary ledger

Let’s separately discuss both these ledgers below.

General ledger

The accounting journal where journal entries related to all the business transactions are recorded is called general ledger. It is the base of all the financial reports as it contains summary of all the transactions of a business. From general ledger, data can be sorted out to get information about any specific account.

As general ledger contains the record of all business transactions related to all accounts, it is not possible to specify all details of transactions. It only contains a brief description of transactions recorded. However, there are some areas where details of transactions are important. In such cases, separate ledgers called subsidiary ledgers are created and transactions are recorded there in detail. Balances of subsidiary ledger accounts and related general ledger accounts should always be equal, as they are reporting the same thing. Difference is just that general ledger account is a summary account or control account containing only summarized amounts whereas subsidiary ledger account contains all the details of each transaction.

Subsidiary ledger

It is a ledger which supports a general ledger account and contains detailed record of business transactions related to that account. For instance, accounts receivable is an area where the businesses want to document specific details of all the transactions such as for each party, details of each credit sale, details of each receipt, discounts allowed, effect of sales returns etc. All these details related to accounts receivable are recorded in the subsidiary ledger and only summarized amounts are recorded in general ledger. In this way, important details related to a particular area are documented separately without effecting the overall format of general ledger. Some other useful subsidiary ledgers include accounts payable subsidiary ledger and inventory subsidiary ledger.