Ledgers – SS1 Book Keeping Lesson Note (Second Term)

A ledger is the principal book of account. Journals are the books where entries are first made before they are posted to the ledger. The ledger receives the items from the cash book, purchases and sales journals, return inward and return outward journals, journal proper and petty cash book, so that the double entry principle is maintained.

Behavioural objectives

By the end of the lesson, students should be able to:

• define a ledger and state how it differs from a journal;
• state the rules for posting the cash book, purchases journal and sales journal to the ledger;
• explain the meaning of balance c/d and balance b/d;
• classify accounts into real, nominal, personal and impersonal accounts;
• state the two fundamental rules of double entry.

What are the rules for posting transactions to the ledger?

1. Posting from the cash book: all the items on the debit side of the cash book are posted to the credit side of the ledger, while all the items on the credit side of the cash book are posted to the debit side of the ledger.
2. Ruling of the ledger: the ruling of the ledger is the same as that of the cash book. Hence it is said that the cash book is a ledger as far as the cash account is concerned.
3. Posting the purchases journal: all the separate individual purchases are posted to the credit of the accounts of the suppliers from whom the purchases are made, while the total purchases for the month are posted to the debit of the purchases account in the ledger.
4. Posting the sales journal: all the separate individual sales are posted to the debit of the account of the customer to whom the sales are made, while the total sales for the month are posted to the credit side of the sales account in the ledger.

What do balance c/d and balance b/d mean?

• Balance carried down (c/d): the balancing figure, that is, the difference between the debit and credit sides. It is usually entered on the side with the smaller total so that both sides of the ledger balance.
• Balance brought down (b/d): usually written below the balancing lines to form the first entry in the next period.

How are accounts classified?

1. Real accounts: a record of the amount of assets, liabilities, reserves and capital that appear on a balance sheet at a definite moment in time. A real account is also called a permanent account.
2. Nominal accounts: temporary accounts that report gains and losses and are usually closed at the end of the accounting year, for example sales account or salary account.
3. Personal accounts: accounts that represent an individual or an organisation. An example is a bank account.
4. Impersonal accounts: any account other than a personal account. An impersonal account is either a real account, in which property is recorded, or a nominal account, in which income, expenses and capital are recorded.

What is the difference between a ledger and a journal?

What are the fundamental rules of double entry?

Remember these two fundamental rules of double entry bookkeeping:

1. Accounts which receive value should be debited.
2. Accounts which give value should be credited.

Evaluation

1. What is a ledger?
2. State the rule for posting the debit side of the cash book to the ledger.
3. Which accounts are credited when individual purchases are posted from the purchases journal?
4. What is the meaning of balance b/d?
5. State the two fundamental rules of double entry.

Assignment

1. Define ledger.
2. Differentiate between real and nominal accounts.