What Is a Sub Account? Definition, Types, and Examples

November 8, 2024

Staying organized may seem small, but it helps you achieve your financial goals, and one such way is by using sub-accounts. Individual compartments within your primary account enable you to categorize funds for specific purposes like investing, saving, or managing expenses. You can better understand your financial landscape and make informed decisions by utilizing sub-accounts. Read on to learn more about sub-accounts and how they can benefit your financial system. 

What Is a Sub-Account?

A sub-account is a smaller, nested account within a larger primary account. It is a compartmental attribute to categorize and manage funds for different purposes. A primary account can have more than one sub-account, each serving a distinct function. 

Example of Sub-Accounts

Primary Account: The main business account for company bookkeeping.

Sub-Accounts:

Marketing: For tracking advertising, promotional expenses, and other marketing costs.

Payroll: To manage employee salaries, taxes, and benefits.

Inventory: For tracking the cost of goods purchased and sold.

This structure helps the business owner easily monitor each area's financial health and make informed decisions about resource allocation.

What Is a Sub Account Number?

A sub-account number is a unique identifier assigned to a specific sub-account within a larger, primary account. It distinguishes between different categories or purposes within the main account.

For example, if your primary checking account has sub-accounts for savings, expenses, and investments, each sub-account would have its unique number. This helps you easily track and manage funds allocated to each category.

Why Use Sub-Accounts?

Sub-accounts offer several advantages for individuals and businesses alike. This section details the purpose of using a sub-account. 

  • Sub-accounts help you categorize and manage your finances more effectively, making tracking income, expenses, and savings easier.

  •  By creating separate sub-accounts for specific goals (e.g., emergency fund, vacation, down payment), you can stay focused and motivated to achieve them.

  • Sub-accounts allow you to monitor your spending habits and identify areas where you can cut back or allocate funds more wisely.

  • If your primary account is compromised, sub-accounts can help limit the damage by isolating funds for specific purposes.

  • Sub-accounts can be used to create and manage budgets for different areas of your life, such as household expenses, personal expenses, or business operations.

  • For investors, sub-accounts can track different investment strategies or asset classes, making assessing performance and managing risk easier.

Types of Sub-Accounts

You can have more than one sub-account, and here’s a list of how to organize finances with sub-accounts. 

Personal Finance Sub-Accounts

Savings Sub-Account

A savings sub-account is a dedicated portion of your primary account for future financial needs. It can be used for various purposes, such as:

  • Emergency Fund: To cover unexpected expenses like medical bills, car repairs, or job loss.

  • Goal-Based Savings: To save for specific objectives, such as a down payment on a house, a vacation, or education.

  • Retirement Savings: To contribute to retirement accounts like 401(k)s or IRAs.

Expenses Sub-Account

An expenses sub-account (might be an operating expenses sub-account) is used to track and manage your business spending habits. It can be further divided into subcategories based on expense type, such as:

  • Housing: Rent, mortgage, utilities, and home maintenance.

  • Transportation: Car payments, insurance, fuel, and public transportation.

  • Food: Groceries, dining out, and meal prep.

  • Entertainment: Movies, concerts, hobbies, and travel.

  • Personal Care: Clothing, toiletries, and healthcare.

Investments Sub-Account

An investment sub-account is used to track and manage your investment portfolio. It can include various types of investments, such as:

Stocks: Ownership shares of a company.

Bonds: Debt securities issued by governments or corporations.

Mutual Funds: Pooled investments managed by professional investors.

Exchange-Traded Funds (ETFs): Basket of securities that trade on an exchange.

Debt Payments Sub-Account

A debt payments sub-account is used to track and manage your debt obligations. It can include:

  • Credit Card Debt: Balances owed on credit cards.

  • Student Loans: Loans used to finance education.

  • Personal Loans: Loans obtained for personal expenses.

Business sub-accounts

Payroll Sub-Account

A payroll sub-account is used to manage the financial aspects of employee compensation. It typically includes:

  • Salaries and Wages: The base pay and overtime pay for employees.

  • Taxes: Income taxes, payroll taxes (e.g., FICA, FUTA), and other taxes withheld from employee paychecks.

  • Benefits: Health insurance, retirement plans, paid time off, and other employee benefits.

  • Payroll Taxes: Employer contributions to payroll taxes.

Marketing Sub-Account

A marketing sub-account is used to track and manage marketing expenses. It can include:

  • Advertising: Costs associated with advertising campaigns, such as print ads, TV commercials, and digital marketing.

  • Public Relations: Expenses for public relations activities, such as press releases, media relations, and event sponsorships.

  • Sales Promotions: Costs associated with sales promotions, such as discounts, coupons, and contests.

  • Market Research: Expenses for market research studies and data analysis.

Research and Development Sub-Account

A research and development sub-account tracks and manages product development and innovation expenses. It can include:

  • Research: Costs associated with research activities, such as laboratory experiments, data analysis, and technical studies.

  • Development: Costs associated with product development, such as prototyping, testing, and engineering.

  • Intellectual Property: Costs associated with obtaining and protecting intellectual property, such as patents, trademarks, and copyrights.

Customer Accounts Sub-Account

A customer accounts sub-account is used to track and manage customer transactions. It can include:

  • Accounts Receivable: Amounts owed to the business by customers for goods or services sold on credit.

  • Accounts Payable: Amounts the business owes suppliers for goods or services purchased on credit.

  • Customer Refunds: Refunds issued to customers for returned merchandise or other reasons.

  • Customer Discounts: Discounts offered to customers for bulk purchases or other reasons.

By using these sub-accounts, businesses can effectively track and manage their finances, identify areas for cost savings, and improve profitability.

Investment Sub-Accounts

This can help investors:

  • Diversify their portfolio: By investing in different asset classes, investors can reduce their overall risk.

  • Monitor performance: Sub-accounts allow investors to track the performance of different investment strategies and make adjustments as needed.

  • Manage risk: Investors can use sub-accounts to allocate their investments based on risk tolerance and goals.

Different Investment Strategies

Some common strategies that investors use include:

  • Growth Investing: This strategy focuses on investing in companies expected to experience rapid growth in earnings and revenue.

  • Value Investing: This strategy focuses on investing in undervalued companies relative to their intrinsic value.

  • Income Investing: This strategy focuses on investing in securities that generate regular income, such as dividends or interest payments.

  • Index Investing: This strategy involves investing in index funds or ETFs that track a specific market index, such as the S&P 500.

  • Tactical Asset Allocation: This strategy involves actively shifting investments between asset classes based on market conditions.

Asset Classes

Asset classes refer to broad categories of investments, such as:

  • Stocks: Ownership shares of a company.

  • Bonds: Debt securities issued by governments or corporations.

  • Cash and Cash Equivalents: Short-term, highly liquid investments like money market funds and Treasury bills.

  • Real Estate: Investments in properties, such as residential or commercial real estate.

  • Commodities: Investments in raw materials, such as gold, oil, and agricultural products.

Best Practices for Using Sub-Accounts

Regular Review and Update

To ensure that your sub-accounts are working effectively, reviewing and updating them regularly is essential. This includes:

  • Checking balances: Ensure your sub-accounts have sufficient funds to meet your needs.

  • Monitoring spending: Track your spending in each sub-account to identify areas where you can cut back or allocate funds more wisely.

  • Adjusting limits: If your financial situation changes, you may need to adjust the spending limits for your sub-accounts.

Setting Spending Limits

Setting spending limits for your sub-accounts can help you stay on track with your financial goals. This is especially important for sub-accounts for discretionary spending, such as entertainment or travel.

Consider your income, expenses, and financial goals when setting spending limits. You may want to review them regularly to ensure they are still appropriate.

Avoiding Over-Complication

While sub-accounts can be a valuable tool for organizing your finances, avoiding overcomplicating your financial system is essential. If you have too many sub-accounts, keeping track of them and making informed decisions can take time and effort.

A good rule of thumb is to start with a few sub-accounts and add more as needed. As your financial situation becomes more complex, you can create additional sub-accounts to manage your funds better.

What Is a Sub-Account in QuickBooks?

Sub-accounts in QuickBooks are a powerful tool that helps you keep your chart of accounts organized and detailed. You can create subaccounts in your chart of accounts in QuickBooks Online to categorize transactions within your main accounts. For instance, you might have a primary account for "Sales" and create subaccounts like "Online Sales" and "In-Store Sales." This provides a granular view of your business's revenue streams. 

Additionally, you can change an existing account into a subaccount to restructure your chart of accounts as your business evolves. 

Saasant Transactions is a valuable data-importing application that simplifies importing accounting data into QuickBooks. With its automated data import feature, you can reduce manual entry errors and save time. This ensures data integrity and helps you maintain accurate financial records.

Conclusion

In conclusion, sub-accounts offer a versatile and effective way to organize and manage your finances. By creating separate compartments for various purposes, you can better understand your financial health, set and achieve goals, and make informed decisions. Whether managing personal finances, running a business, or investing, sub-accounts can be valuable for improving your financial well-being. Consider incorporating sub-accounts into your financial strategy to simplify your financial management and achieve your objectives.

FAQ

What is the difference between a primary account and a sub-account?

A main account, or a primary account, is an individual or business's primary financial account. Sub-accounts are smaller, separate accounts nested within the main account, used for specific purposes like savings, expenses, or investments.

What are the benefits of a sub-account?

Sub-accounts offer several advantages, including per-department financial tracking, Shared Access for authorized users, and the ability to classify funds for specific purposes, making budgeting and analysis more efficient.

What is the purpose of using subaccounts?

Sub-accounts categorize accounting or budget transactions, providing a detailed view of income and expenses. This helps businesses track financial performance, identify trends, and make informed decisions.

What is a sub-user on a bank account?

A sub-user, also known as an authorized user, is an individual granted access to a bank account by the primary account holder. This allows them to view account information, make transactions, or have limited access based on the primary account holder's permission.

What is a sub-share account?

A sub-share account is a secondary savings account associated with a primary share account at a financial institution. It allows members to allocate funds for specific purposes, such as savings goals or investments while maintaining their primary share account.

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