Table Of Contents
1. Meaning Of The Ledger
2. Classification Of Ledger Account
3. Classes Of Ledger
4. Advantages And Disadvantages Of Loose-Leaf And Card Ledgers.
Meaning Of The Ledger
A Ledger is a book in which the monetary transactions of a business are posted in the form of debit and credit. It is a book in which monetary transactions of a business are listed in different accounts. It has numbered pages.
Each page is called a folio and the number in it is a folio number. It is written in top right hand corners of the page and is useful for reference purpose.
Classification Of Ledger Accounts
a. Personal Accounts:
These are accounts in which transactions with persons or other business organization are recorded. Example are debtors and creditors. The capital account is a special kind of account. It is an account in which the value of the owner’s investment in the business is recorded.
b. Real Account:
They are impersonal accounts which record transactions relating to property or material objects. Examples include accounts of land and buildings, motor vehicles, stock of goods bought for resale. As a group, the objects are called tangible assets, because we can see and touch them.
c. Nominal Account:
They are accounts which receive and give value in name only. What they receive and give cannot be seen as they have no physicay form. Examples of such accounts are general expenses, rents and rates, interests and dividends received or paid. They record losses and profits. These classifications of account notwithstanding, the general rules of double entry still apply. Debit accounts that receive and credit accounts that give value.
Classes Of Ledger
A business that is small can conveniently maintain a single ledger in which transactions are recorded by one clerk. Such practice can create problems if the business is bigger in size. First, the work might be too much for one clerk to handle effectively.
Secondly, the book can become too unwidely for information to be easily obtained when the need arises. To minimize these problems, it is often considered necessary to divide the ledger into several parts, each concerned with specific classes of transaction.
a. Sales Ledger:
As earlier said another name for sales ledger is the debtors ledger, it contains a seperate account for each individual to whom goods have been sold, or for whom services have beem performed on credit. That explains why it is called debtors ledger since it contains the personal accounts of debtors of the business.
b. Purchase Ledger:
This ledger contains the personal account of those who have supplied goods to the business on credit. It is therefore a ledger for keeping personal accounts of creditors. Until payment is made to the creditor the amount owing will be reflected by a credit balance in the account.
c. General ledger:
It is a ledger in which real nominal accounts are kept.
d. Private Ledger:
This is a confidential ledger kept by either the proprietor or the accountant and outside the reach of the other staff. The types of account to be kept in the private ledger depend on the requirements for the particular business and the wishes of management.
This consists of separate sheet printed in ledger ruling. Expanding binders are provided into which each separate sheet is inserted and locked by an authorized person. Each ledger is given a distinctive number or letter and account in each ledger arranged alphabetically. This makes it easy to refer to a particular account in the ledger when necessary. When each leaf is full, the binders can be unlocked, the full leaf extracted and filed in another binder reserved for full accounts. A new leaf is then inserted in place of the old one.
Alternatively, additional leaves may be added to the old ones. Until the end of the year when the balances of the ledger account are transferred into a new book. This has the advantage that a continuous history of each account with respect to each year will thus be contained in one volume.
These are increasingly being used in place of bound ledger. Each card ledger consists of a printed card for each customer or supplier as appropriate. The card are arranged in an orderly manner and filed in special cabinets. As each card becomes full, it is transferred to a separate cabinet kept for completed accounts and is then replaced with a new card.
Credit and cash transactions entered in a loose-leaf or card ledger still have to follow the rule of double entry. A debit entry in one account will have a corresponding credit entry in another account. If this rule is carefully followed, the total debit entries will exactly equal the sum of the total credit entries in the different accounts.
Advantages Of Loose-Leaf And Card Ledgers
a. The system is simple and avoids wastage of space allotted to each account in bound ledger.
b. Account balances can be easily extravted periodically.
c. Several clerks can work on one ledger at the same time.
Disadvantages Of Loose-Leaf And Card Ledgers
a. The cards or loose leaves may be destroyed either willfully or by accident.
b. Fresh cards or leaves may be inserted in place of old ones to hide fraud.