Ledgers – SS1 Book Keeping Lesson Note (Second Term)

A ledger is the principal book of account, in which entries from the journals are posted and grouped under separate accounts.

Behavioural objectives

1. Define a ledger and state how it differs from a journal.
2. State the rules for posting the cash book, purchases journal and sales journal to the ledger.
3. Explain the meaning of balance c/d and balance b/d.
4. Classify accounts into real, nominal, personal and impersonal accounts.
5. State the two fundamental rules of double entry.

What is a ledger?

A ledger is the book that holds all the accounts of a business, each account recording the transactions that affect one item.

• Journals: the books where entries are first made before they are posted to the ledger.
• Posting: the act of copying journal and cash book entries into the correct ledger accounts.
• Sources: cash book, purchases journal, sales journal, return inward journal, return outward journal, journal proper and petty cash book.
• Purpose: to maintain the double entry principle, so every debit has a matching credit.

What are the types of ledger?

There are three types of ledger: the sales ledger, the purchases ledger and the general ledger.

• Sales ledger: holds the accounts of customers (debtors) who buy goods on credit.
• Purchases ledger: holds the accounts of suppliers (creditors) from whom goods are bought on credit.
• General ledger: holds the real and nominal accounts, such as cash, machinery, sales, purchases and salaries.

What is the layout of a ledger account?

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

• Title: the name of the account is written at the top, for example Bello Account.
• Date: the date of each transaction is written in the first column.
• Details: the name of the other account that holds the second part of the entry.
• Folio: the page number of the book where the entry came from or goes to.
• Amount: the value of the transaction on the debit or credit side.

What are the fundamental rules of double entry?

Double entry means every transaction is recorded twice: once as a debit and once as a credit of equal value.

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

Examples of double entry

What are the rules for posting transactions to the ledger?

Each entry is posted to the side of the ledger opposite to the side it occupies in the book of original entry.

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 c/d is the balancing figure carried down at the end of a period, and balance b/d is the same figure brought down to start the next period.

• 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.

Steps for balancing a ledger account

1. Add up the debit side and the credit side separately.
2. Find the difference between the two totals.
3. Write the difference on the side with the smaller total as balance c/d.
4. Write the new total, which is now equal on both sides, on the same line.
5. Write the same figure below the totals, on the opposite side, as balance b/d.

Worked example: Bello Account

• Debit total: ₦5,000 is larger than the credit total of ₦3,000.
• Balance: ₦5,000 minus ₦3,000 gives ₦2,000, entered as balance c/d on the credit side.
• Meaning: the debit balance b/d shows that Bello still owes the business ₦2,000.

How are accounts classified?

Accounts are classified as personal, real and nominal, and the real and nominal accounts together are called impersonal accounts.

• 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.
• Nominal accounts: temporary accounts that report gains and losses (income and expenses) and are usually closed at the end of the accounting year, for example sales account or salary account.
• Personal accounts: accounts that represent an individual or an organisation, for example the account of a customer (debtor) or a supplier (creditor).
• 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 and expenses are recorded.

What is the difference between a ledger and a journal?

A ledger is the principal book of account, to which all the items in the journals and cash books are posted to maintain the double entry principle.

A journal is a book where entries are first made, in date order, before they are posted to the ledger.

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

Define a ledger, then differentiate between real and nominal accounts, giving two examples of each.