Ledger Entries – JSS2 Business Studies Lesson Note (Second Term)

A ledger is the principal book of account in which transactions are recorded in summarised form, account by account.

Behavioural objectives

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

1. define a ledger;
2. draw the format of a ledger;
3. classify ledger accounts into personal, real and nominal accounts;
4. state the rule for debiting and crediting each type of account;
5. name the four divisions of the ledger and state what each one records.

What is a ledger?

A ledger is a book that groups all the entries on one item together in one place, called an account.

• Principal book: it is the main book of account of a business.
• Final destination: entries are first written in the subsidiary books, such as the sales journal and cash book, then posted to the ledger.
• Account: each page or section of the ledger is given to one item, such as cash, furniture or salary.
• Summarised form: the ledger shows the total effect of many transactions on one account.

What is the format of a ledger?

A ledger account has two sides: the left is the debit (Dr) side and the right is the credit (Cr) side.

• Date: the day the transaction took place.
• Particulars: the name of the other account involved in the entry.
• Folio: the page number or reference of the book where the entry is found.
• Amount: the value of the transaction in naira (₦).

How are ledger accounts classified?

Ledger accounts are classified into two main groups: personal accounts and impersonal accounts.

What is a personal account?

A personal account is a ledger account that records dealings with persons or organisations.

• Debtors: people who owe the business money, such as a customer who bought goods on credit.
• Creditors: people the business owes, such as a supplier who sold goods on credit.
• Capital: the money or assets the owner put into the business.
• Bank account: the business dealings with its bank.

What is an impersonal account?

An impersonal account is a ledger account that does not record dealings with a person; it is either real or nominal.

• Real account: records the assets of the business, such as building, motor vehicle, furniture and stock.
• Nominal account: records the income and expenses of the business, such as insurance, transport and salary.

What is the difference between personal, real and nominal accounts?

How do we debit and credit each type of account?

Every transaction affects two accounts: one is debited and the other is credited.

What is a worked example of a ledger entry?

Example: the business buys furniture for ₦20,000 and pays in cash.

1. Identify the two accounts: furniture account and cash account.
2. Furniture is an asset that comes in, so debit the furniture account.
3. Cash goes out, so credit the cash account.

Furniture account:

Cash account:

What are the divisions of the ledger?

There are four divisions of the ledger: the sales ledger, the purchases ledger, the general ledger and the private ledger.

• Sales ledger: also called the debtors ledger.
• Purchases ledger: also called the creditors ledger.
• General ledger: holds real and nominal accounts.
• Private ledger: holds confidential accounts.

What is the sales ledger (debtors ledger)?

The sales ledger is the division that records the accounts of debtors.

• Debtors: those who owe money that belongs to the organisation.
• Example: a customer who buys goods on credit has an account here.

What is the purchases ledger (creditors ledger)?

The purchases ledger is the division that records the accounts of creditors.

• Creditors: people to whom money is owed, or persons from whom goods have been bought.
• Example: a supplier who sells goods to the business on credit has an account here.

What is the general ledger?

The general ledger is the division that takes care of both real and nominal accounts.

• Real accounts: building, motor vehicle, furniture and stock.
• Nominal accounts: insurance, transport and salary.

What is the private ledger?

The private ledger is the division where confidential accounts are recorded.

• Access: only the owner or a trusted senior officer should see it.
• Example: the owner’s capital account.

Evaluation

1. What is a ledger?
2. Draw the format of a ledger.
3. Name the types of ledger account and give one example of each.
4. Who are debtors and who are creditors?
5. State the four divisions of the ledger.

Assignment

List the four divisions of the ledger. State what each one records.