Sub-ledger

What is the sub-ledger ?

Double-entry bookkeeping is indispensable for determining the assets and liabilities of a company. In accounting circles, this is often referred to as double-entry bookkeeping. In concrete terms, this means that all business transactions and receipts must be recorded (document organization) and entered in at least two accounts (book organization).

Let us first deal with the document organization: Basically, a distinction is made between internal and external documents. While internal documents can be, for example, receipts, payrolls, material withdrawal slips or private deposits/withdrawals, external documents are all documents that concern the usual business transaction. This includes incoming and outgoing invoices, bank statements and delivery bills.

Another pillar of double-entry bookkeeping is the book organization. In the title register (also called journal), all vouchers are documented chronologically and with all information (date, amount and other notes).

The general ledger, on the other hand, contains all general ledger accounts. This means that all entries recorded in the land register are transferred here and are arranged factually on a general ledger account.

The sub-ledgers support, so to speak, the posting records in the general ledger and the general ledger. Examples of a sub-ledger are the following:

• Good book: All goods receipts and issues are posted here
• Current account ledger: The postings are sorted by business partner and customer, in order to determine, for example, whether a customer account is balanced or not (open item accounting)
• Payroll accounting: Crucial for payroll accounting
• Asset Accounting: Changes in non-current assets are recognized here
• Bill of exchange
• Cash book

What is the significance of the sub-ledger for controlling?

The vouchers

The recording of all receipts forms the basis for the allocation of amounts to specific accounts. These include, for example, outgoing invoices, incoming invoices, cash vouchers and bank statements.

The title register

On this basis, all business transactions are recorded in chronological order. These include opening entries, current entries, preparatory closing entries and the closing entries themselves. These are transferred to the land register, also called journal or diary.

The general ledger

A company’s controlling is only complete with the general ledger. After a temporal allocation has already taken place, the general ledger is concerned with the factual allocation of all business transactions recorded in the land register.

The sub-ledgers

In order to be able to make accruals and deferrals and to have a better overview of individual items in the general ledger, there are also so-called sub-ledgers. Examples include the payroll ledger, the investment ledger, the current account ledger, the cash ledger and the outgoing invoice ledger.

In Germany, there is an accounting obligation pursuant to §238 of the German Commercial Code (HGB). The minimum requirement is that each document must be traceable and verifiable. This is stipulated by the German generally accepted accounting principles (GoB). The function of the sub-ledgers is particularly helpful for controlling in order to be able to assign accounting records to individual projects and G/L accounts.

From an entrepreneurial point of view, it is therefore particularly important to know how the individual business units are doing from an accounting point of view.

What is the “debit” and what is the “credit”? Such double-entry bookkeeping not only has consequences for controlling. Possible financial imbalances or surpluses also lead to budget adjustments at the project or department level. Where do savings have to be made, where can budgets be distributed? In this way, the theoretical expression sub-ledger takes on a very practical meaning.

Another important point and reason for maintaining sub-ledgers or G/L accounts is the issue of accruals. To act entrepreneurially adequate, anticipatory business decisions are important to look ahead and grow. For which project do I need to reserve possible budgets to achieve my business plans?

What does the sub-ledger means for the Subscription Economy?

The term bookkeeping comes from the fact that, in fact, only a few decades ago, all entries were recorded and assigned in classic books. This is also referred to as the loose-leaf method. In times of digitalization and the subscription economy, this approach sounds rather antiquated. Today, an entrepreneur or controller can choose from a pool of accounting programs and that is also necessary.

Dealing with subscription customers is essentially based on constant change. A dynamic business model must therefore also be reflected in accounting. Standardized IT accounting can simultaneously record and process bookings, which is essential, especially for subscription models. If we imagine only 1,000 subscription customers per month, we are already talking about possibly 12,000 invoices per year. An effort that can only be managed with perfectly coordinated accounting software.

The sub-ledger – the most important secondary matter of an entrepreneur

As theoretical as a sub-ledger in digital financial accounting may sound today, it is important and practical to know what effects the correct maintenance and allocation of G/L accounts have on business transactions in the company. Only those who know how profitable (or problematic) internal projects and accounts currently are can make provisions and thus take precautions that can be decisive for business success.

In short, the subledger, with all its contextual connections, should be part of an entrepreneur’s most important secondary business.