What is general ledger and subledger

The main ledger - the main thing,
the numbers are correct

Numbers are the be-all and end-all in business. With their help you get valuable answers to economic questions and can orientate yourself in an environment characterized by profit-oriented companies. They tell you, for example, how successful a certain company is compared to other market participants, and consequently provide the company in question as well as its customers, business partners and investors with an important basis for decision-making. However, in order for the parties concerned to benefit from this valuable guide, the necessary information must be collected, on the basis of which meaningful key figures such as profit or productivity can be calculated. This is where financial accounting comes into play. As the name suggests, financial accounting records all processes that have any financial impact on a company. This is not only the income from the company's business activities, but also other operational processes that affect the assets of a company, such as a decrease in the value of production facilities or the sale of real estate that is no longer required.

The general ledger as the totality of all accounts

All these processes must now be recorded by the accounting department with the help of accounts, so that, among other things, the asset structure and the generation of the profit generated can be traced. For investors in particular, it is of great interest whether the reported profit is really due to the company's successful business activity or merely to a possible release of hidden reserves. The totality of all these accounts, which companies use to book their business transactions, represents the general ledger. Certain, particularly interesting accounts in this book, such as the debtors collective account, are kept in more detail in a sub-ledger. In this way, more meaningful information is determined in these areas, on the basis of which one can understand in detail the purely numerical and not very meaningful change in the main account concerned. The results of the sub-ledgers are ultimately transferred back to the corresponding main accounts.

The definition of the general ledger

The definition of general ledger includes the following areas: On the one hand, this book functions as a generic term for all accounts that a company uses to book its business transactions; on the other hand, it is the name for one of the three books that are used in the context of double-entry bookkeeping. The accounts are divided into active and passive accounts as well as inventory and income accounts. This area of ​​bookkeeping is in constant communication with the journal, in which all business transactions are entered in a chronological order in an explanatory manner prior to the actual posting. After accounting has made an entry in the journal, it is assigned to the relevant accounts in the general ledger and posted properly. In contrast to the chronological structure of the journal, this assignment is based on purely factual criteria. If a customer buys goods for cash, this business transaction is entered as follows, for example: cash to goods revenue. This type of posting arises from the fact that double entry posts to existing and profit accounts. The cash account is a stock account, the income from goods is counted towards the success accounts. The profit accounts describe the changes that take place in the inventory accounts. It can thus be clearly seen that the amount of cash in the till has increased due to the income from goods and was not due to an employee having withdrawn a certain amount from the bank and thus made a cash deposit.

The general ledger takes stock

At the end of a business period, usually once a year, companies close all accounts. The accounting department creates the balance sheet and the profit and loss account. If you are interested in a company, you will primarily consult these two important sources of information, because they reflect the company's financial position and debt obligations. Experts use these lists to calculate numbers that are not apparent at first glance. In this way, they can draw conclusions about the state of health of a company. This forms a crucial basis for potential investors to decide for or against a company. However, the balance sheet and profit and loss account are also decisive for the state, because the tax authorities use the figures shown to determine any taxes to be paid by the companies concerned. The legislator therefore regulates the prescribed minimum requirements which companies must meet when preparing their annual financial statements.

Nowadays, the general ledger is mostly kept digitally with the help of accounting software. This makes work easier and saves time. With bexio, the business software for SMEs and the self-employed, for example, the journal is automatically kept and the balance sheet and income statement are supplemented. Simply invite your trustee to cooperate with you for the annual financial statements. This means you spend less time on accounting and more time for your customers. Test bexio now for 30 days free of charge and without obligation.