Building Your Business What Is a Subledger? Subsidiary Ledgers Explained By Nora O'Malley Nora O'Malley Website Nora O'Malley covers small business finance and entrepreneurship topics for The Balance. Along with her writing work, Nora is an entrepreneur and consultant who opened an all-tap wine bar in New York's East Village dubbed Lois and owns a sophisticated snack food business Aida. For her businesses, Nora is responsible for finances, marketing, operations, and fundraising. Along with The Balance, her writing has appeared in Thrillist, Insidehook and Vinepair. learn about our editorial policies Updated on May 30, 2022 Reviewed by David Kindness Reviewed by David Kindness David Kindness is a Certified Public Accountant (CPA) and an expert in the fields of financial accounting, corporate and individual tax planning and preparation, and investing and retirement planning. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article Definition and Examples of Subledgers How Subledgers Work Types of Subledgers Definition A subsidiary ledger, or subledger, is an accounting tool that tracks the details of specific types of transactions and what happens in specific categories within a business’s chart of accounts. Photo: aldomurillo / Getty Images A subsidiary ledger, or subledger, tracks the details of specific types of transactions and what happens in specific categories within a business’s chart of accounts. They are totaled up and that sum informs the general ledger. While the general ledger may be enough for day-to-day financial maintenance, detailed subledgers are crucial components of accurate accounting, especially for businesses with a large sales volume. Subledgers help to segment data and transactions into manageable categories, which can be individually analyzed. Below, we’ll delve further into how subledgers work. Definition and Examples of Subledgers A subledger contains details of transactions within different categories on a business’s chart of accounts. Those detailed transactions determine a subsidiary ledger total, which then is relayed to the general ledger to provide a larger financial snapshot of a business. Alternate name: subsidiary ledger The different types of accounts and necessary subledgers are determined by the business and product. For example, many types of businesses have accounts receivable (AR) and/or accounts payable (AP) on their chart of accounts. Both require subledgers to record the details of customer transactions in order to track money flowing in and out of the business on credit. Note Modern accounting software will automatically create subledgers when necessary. How Subledgers Work Although a business may look to a general ledger for a basic financial overview, the details in the subsidiary ledgers are important when it comes to analyzing all the transactions in a particular category. By segmenting different types of transactions, accountants, analysts, and auditors can see a more granular picture of specific business areas. Only those categories with multiple transactions require a separate ledger to record the details. When it comes to accounts receivable, for instance, it’s important for each transaction to be recorded to track the money owed from services rendered or products sold on credit. The subledger should include: The date of the transactionThe price of the services rendered or products soldThe balance owed in case partial payment has been collectedThe name of the customerThe payment terms, which are usually 30, 60, or 90 daysAny notes that pertain to the transaction This information should be recorded for every transaction. At the end of the accounting period, the subtotal for the accounts-receivable subledger is updated in the general ledger, so that there is an accurate snapshot of the amount of cash owed to the business. This process allows the general ledger to stay streamlined without too many clunky details, but those details recorded still are parts of the business’s accounting history. As a business grows, there are often individuals or entire departments dedicated to the oversight, maintenance, and analysis of subledgers like accounts receivable. Important subledgers can often become their own ecosystem, forming an important foundation to a business’s general ledger as well as larger financial reports. Note Subledgers are also important for any future audits. Auditors such as the IRS will require more detail than offered by the general ledger. All transactions will need to be substantiated by documents such as receipts or invoices. Types of Subledgers Private companies can choose how to structure their chart of accounts and subsequently decide which subledgers are important to include. For example, a restaurant will have very different accounting needs from those of a real estate developer. Common types of subledgers include: Accounts payable: This subledger details what the business owes to suppliers, vendors, or contractors, as well as the amount owed, the terms of payment, and the date due. Accounts receivable: This subledger details the transactions between the business and its customers in order to track how much the former is owed. In larger companies, there may be a department dedicated to maintaining this subledger and collecting the money on time. Fixed assets: The fixed assets owned by a business can be far more complicated than a simple receipt of purchase. This important subledger details things such as depreciation, accumulated depreciation, useful life, historical cost, unrealized and realized loss or gain, and all other information related to the tangible, long-term assets held by a business. Inventory: An inventory subsidiary account details all information about inventory owned by a business, including raw materials, preferred vendors, conversion to finished stock, stock movement and location, customer holds, and damage reports. Payroll: This subledger categorizes all information and transactions related to paying employees, including salaries, tips, payroll taxes, and benefits. Research & development (R&D): R&D is an important subledger for businesses of any size. Even the smallest companies may need to record multiple transactions related to product research, business development, or investor courting. Key Takeaways As businesses grow their sales volume, they will require more complex accounting procedures such as subledgers to record transaction details in different business categories.Each subledger holds a record of transaction details, culminating in a summary amount. At the end of the accounting period, that total number is relayed to the general ledger to allow for an accurate overview of a business’s financials.Grouping transactions into categories allows the relevant details to be recorded and processed without muddying the general ledger. It also offers a complete history of individual business segments for future analysis and audits.Each business should have a unique chart of accounts and different subledgers that best suit their business model and industry. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Lumen Learning. "Financial Accounting: Subsidiary Ledgers & Control Accounts." Accessed Jan. 25, 2022. IRS. "IRS Audits: Records We Might Request." Accessed Jan. 25, 2022.