CH2 LEDGER ACCOUNTS

Main Types of Business Transactions

• Cash sales require a receipt to be issued.
• Credit sales require an invoice to be issued to the customer.
• Sales returns require a credit note issued to the customer.
• Cash purchases require a receipt.
• Credit purchases require an invoice from the supplier.
• Purchase returns require a credit note from the supplier.
• Receipts can be receipts for cash sales or receipts from credit customers.
• Payments can be payments for cash purchases or payments to credit suppliers.

Ledger Accounts

• Ledger accounts record business transactions in the general ledger.
• The general ledger is sometimes called the nominal ledger.
• Businesses continuously make transactions and need organized records.
• Detailed records kept to prepare a statement of profit or loss and a statement of financial position.
• Records of transactions, assets, and liabilities should be chronological and cumulative.
• Cumulative totals are useful on a daily, weekly, monthly, and annual basis.

The General Ledger

• The general ledger summarizes the financial affairs of a business.
• All principal ledger accounts are kept in the general ledger.
• The general ledger can also be called the nominal ledger.
• The general ledger includes details of assets, liabilities, capital, income, expenditure, and profit and loss.
• Each account is distinct with its own purpose, name, identity, or code.
• Subdivisions in the ledger can enhance convenience, handling, confidentiality, security, and software design.
• Ledgers can be split alphabetically and assigned to different staff to prevent fraud, which would require collusion.
• Examples of general ledger accounts include machinery at cost (non-current asset) and motor vehicles at cost (non-current asset).
• Further examples include machinery, accumulated depreciation (liability) and motor vehicles, accumulated depreciation (liability).
• Proprietor's capital (a form of liability) is another example.
• Inventory accounts for raw materials (current asset) and finished goods (current asset) are maintained.
• Trade receivables control account (current asset) and trade payables control account (current liability) are included.
• Other accounts are wages and salaries (expense item), rent and local taxes (expense item).
• Advertising expenses (expense item) and bank charges (expense item) are also in the general ledger.
• Motor vehicle expenses (expense item) and telephone expenses (expense item) are included.
• Sales (revenue item) and total cash or bank overdraft (current asset or liability) are maintained in the general ledger.
• Income and expense accounts are used to form the statement of profit or loss.
• Asset and liability accounts are used to produce the statement of financial position.

The Format of a Ledger Account

• A ledger account can be visualized as a 'T' account.
• The advertising expenses ledger shows an example T account from April 15, 20X6 is JFK Agency for quarter to 31 March with Ref PL 348, and $2,500.
• Ledger accounts have two sides and a heading.
• The account's name is on top.
• There is a left debit side.
• As well as a right credit side.