Keeping accurate accounts is essential to business success. During the early stages of business growth, many startups are able to use simple accounting tools to organize transactions into a single ledger. However, as a business grows it soon becomes clear that more visibility and control is required.
The biggest growth hurdle for many growing businesses is the reality that bills have to be paid before revenue is received. The ability to effectively manage working capital (accounts receivable, accounts payable and inventory) is fundamental to financing business growth. Each element requires a different subledger that can house details of every transaction. Most important of all is the revenue subledger. The ability to track sales from booking to cash receipt helps management understand how the business is performing and answer key questions such as how much capital is needed to sustain growth.
The earlier a fast growing business with multiple revenue streams in multiple markets begins to use a revenue subledger, to not just record transactions but to make decisions, the easier it is to manage growth and ensure accurate accounting.
Failure to establish a robust revenue subledger structure can create issues of accounting control, auditability and, most important of all, handicap an organization’s ability to scale quickly.
What is a revenue subledger?
The revenue subledger records the details of all transactions and journal entries that impact an organization’s sales and revenue. It records the line items on every sales invoice as well as information on discounts, payments received, fees, refunds, disputes, sales taxes, and more.
The revenue subledger consolidates data from multiple source systems that hold transaction data, including the billing system, payment processors (Stripe, Adyen, Braintree, Apple, or Google), order management (Shopify), and any internal systems. The detailed information contained in the revenue subledger is then summarized and posted to the relevant line items in the chart of accounts contained in the general ledger.
The totals in the subledger must agree with those in the general ledger.
How does a revenue subledger work?
An effective revenue subledger should automatically import and standardize transaction details from each source system. Standard business logic built into the revenue subledger intelligently posts transaction detail to the right subledger accounts in accordance with the Generally Accepted Accounting Principles (GAAP) established by the Financial Accounting Standards Board (FASB). Additional customizable logic can be tailored to the unique needs of each business. Since data in the revenue subledger is stored at the transactional level there is a clear audit trail that can be interrogated and validated for accuracy. Effective use of automation and business logic ensures accurate accounting and minimizes the risk of human error.
Your revenue subledger should be updated on-demand so you can effectively manage fast growth. Updates only at month-end close are insufficient in today’s hyper-competitive, real time world.
Benefits of an effective revenue subledger
Revenue subledgers are essential for companies with high growth, high complexity, and high transaction volumes. Here’s why:
- Accounting Integrity: Ensures accurate revenue accounting and provides a full audit trail at the transaction level
- Organization: Provides structured granular access to revenue data for reporting, query, analysis, and decision-making
- Efficiency: Avoids overloading the general ledger with transaction details slowing down period end close cycles, as explained in our webinar: NetSuite Reporting for High Transaction Volume Businesses
- Agility: Organizes revenue data supporting both statutory and management reporting and is scalable to support millions of transactions.
Conclusion
Revenue subledgers set businesses up for the successful financial management of growth. As Workday writes, “finance agility is in the details, and the details are in the subledger.”
Establishing a scalable revenue subledger early in a company’s growth cycle maintains accuracy, promotes agility, and provides auditability. You’ll be ready for anything!
