What is an Accounting Ledger?
A ledger in the accounting world is simply a tool that accountants use to keep track of certain account balances. The most basic type of ledger is illustrated by a T account. An example of a cash T account is provided below.
As you can see from the example, debits go on the left and credits go on the right. At the bottom of the accounting ledger there is usually a number that sums up the account balance. This makes it easy for someone who just wants to take a quick look and see how a certain account is doing. Of course, all this is done in software these days (unless you’re a student in which case you may still have to do this by hand for pedagogical purposes).
There are several different types of accounting ledgers, the most popular being the general ledger account, known as the GL. The GL is usually broken down into categories like cash, accounts receivable, accounts payable, revenues, expenses, etc. These individual categories are often broken down into smaller ledgers, known as subsidiary ledgers.
Subsidiary ledgers are a break-down of the larger ledger. An example will perhaps make this clearer. Let’s take the accounts receivable general ledger as an example. It has the current total of all accounts receivable for the company. However an organization may want more information about what this accounting ledger is made up of so it makes a different ledger for each of its customers.
Having a different ledger for every customer means that each customer has its own T-account. This can provide very valuable information. Going back to our accounts receivable example, a company may want to know why their accounts receivable balance is so large. The company can look at each of the subsidiary (customer) ledgers and find out that John Doe has a very large outstanding balance. They can then work with John to make sure he pays off his accounts receivable.
Note that in our example if the company didn’t track accounts receivable at the subsidiary level, they would have never known that it was John Doe causing all of their AR headaches.
Summary: Accounting ledgers are simply T-accounts that make it easy to track information and see account balances. The general ledger accounts are the most popular type of account ledger. Subsidiary ledgers can provide an organization better, more detailed information than a general ledger account which will allow the company to make better decisions.
