Topic 5: Ledgers - Book Keeping Notes Form One New Syllabus

Topic 5: Ledgers – Book Keeping Notes Form One New Syllabus

Introduction

ledgers play a crucial role in accounting and financial management for enterprises. They serve as a key component of the accounting process.

The competencies developed will enable you to post entries from various books of prime entries to respective ledger accounts and balance the ledger accounts.

Concept of a ledger

ledger is fundamental to accounting.

Ledger

is a principal book or digital record where business transaction is systematically and chronologically recorded.

It serves as a permanent and comprehensive repository of all transactions.

Meaning and format of a ledger:

Ledger:

is a main book of accounts. is a book used to record transaction.

It used for keeping track of expenses, revenue, receipts, payments, and other financial matters. It is, therefore a record in which accounts are kept.

Format of a ledger:

A ledger contains specific records called accounts. An account is a record which shows increases and decreases of specific asset, liability, revenue, expense or capital item in the ledger.

The ledger has two sides. These are

The left-hand side, which is called the debit side (abbreviated as Dr).
The Right-hand side which is a called the credit side (abbreviated as Cr).

Ledger accounts has the following columns.

Date:
is the column used to write the date, month, and year of the transaction.

Particulars:
is the column indicating the short description of the entry for the transaction recorded.

Folio:
is the column records page reference in the books of accounts.

Amount:
is the column records the amount of money being transacted.

The format of the ledger account

Debit (Dr) Name of the Account Credit (Cr)

Date	Particulars	Folio	Amount	Date	Particulars	Folio	Amount

Types of ledgers:

There are five types of ledgers which are.

Cash book ledger.

Is a ledger used to record all cash and cheque transactions.

Sales ledgers:

is a ledger used to record transactions, regarding credit customers.

Sales ledger comprises individual accounts of debtors.

Also known as debtor’s ledger, receivable ledger or trade receivable ledger.

Purchases ledger:
is a ledger used to record transaction with creditors or suppliers of goods or services on credit.

Purchases ledgers comprise individual accounts of creditors.

Also known as account payable ledger, creditors ledger or trade payable ledger.

General ledger:
is the ledger that contains different accounts that do not record transactions relating to individuals.

It deals with total amounts from day books or special journals or posting from the general journal to accounts that represent each class of transactions namely revenue, expenses, assets, liabilities and owner’s equity (capital).

Private ledgers:

is a ledger used to keep confidential information of the business owner.

In this regard, the owner restricts access to the ledger to selected individuals.

Examples of private ledgers are capital ledger and drawing ledgers.

IMPORTANCES OF LEDGERS:

They enable double entry to be completed: posting entries to the ledger facilitates completion of double entry because a ledger has a debit and a credit side, to which debit and credit entries are posted respectively.

They are used in the classification of accounts: the preparation of ledgers enables the book-keeper to classify accounts easily according to their nature which are personal account and impersonal account (real and nominal accounts).

Ledger can be used for statistical purposes: the balances extracted from ledger accounts can be used as inputs for further analysis and projections concerning the firm by researchers.

They used to keep financial records: this enable the owner and any other who may have access to the ledgers such as auditors and government authorities to make reference of any transaction recorded in the ledger accounts.

They are used in the preparation of a trial balance: a ledger balance forms the basis for the preparation of a trial balance. In simple terms, there is no trial balance if there are no general ledger accounts.

They are used when preparing the financial statements: the balances extracted from the ledgers make the preparation of financial statements possible.

CLASSIFICATION OF ACCOUNTS

is the process of grouping accounts with similar nature and characteristics.

TYPES OF ACCOUNTS

There are two main types of accounts which are personal accounts and impersonal accounts.

Personal accounts

these are accounts record transactions relating to persons.

Types of person accounts

There are two types of person accounts which are natural person and an artificial person

Natural person account:

is a person who was born biologically. Examples natural persons like Juma, Asha, Salim etc.

Artificial person account:

is the person one formed under the law and empowered to perform business activities in their own name, within the powers given to them by the law. Examples, Tanzania Institute of Education, Bank of Tanzania, Ikule Secondary School etc.

Impersonal accounts:

these are accounts that records all other transactions relating except those recorded in personal accounts. They do not record transactions relating to persons of firms.

Types of impersonal accounts:

There are two types of impersonal accounts which are real accounts and nominal account.

Real accounts:

These are accounts used to record transactions relating to assets and liabilities in the general ledger.

Example of real accounts includes accounts for assets such as land, machinery, furniture, fixtures and fittings, motor vehicle, stocks/inventory, account receivable/debtors, cash at bank, cash in hand.

Other includes liabilities accounts such as account payable, bank overdraft and bank loans.

Nominal accounts:

These are accounts used to record transactions relating to expenses and revenues.

Types of Nominal accounts:

There are two types of nominal accounts which are expenses and revenue accounts.

Expenses accounts:

These are account records cost incurred for running a business. Examples of expenses are rent, salaries, purchases, carriage outward, advertising, discount allowed, bad debts, depreciation, transport etc.