LEDGERS
The ledgers are the collections for ledger accounts. Whether in bound books, loose-leaf pages, or computer printouts, ledger account are put together to form the following:
a general ledger (or nominal ledger)
subsidiary ledgers
The subsidiary ledgers comprise: the sales ledger (the collection of individual debtor's balances; and the purchase ledger (the collection of individual creditor's balances).
The cash book is in a unique position as a ledger account, because it is not only a book of prime entry - collecting all the transactions relating to the movement of cash - but also a ledger account, producing, at any time, a balance of cash on hand that should naturally agree with the actual amount held in the business or at the bank.
Books of Prime Entry
Manual systems:
Due to the fact that there are many thousands of transactions in a normal business, it is necessary to have a subsidiary book that collects similar transactions. At regular intervals, these are posted in total in the ledger accounts.
The books of prime entry include:
cash book
sales daybook (journal book)
purchase daybook (journal book)
general ledger journal book
Computerised systems:
One of the great advantages of a computerised accounting system is that the second entry for each transaction can be done automatically by the program. In effect it 'balances the books for you'.
In a computerised system, the books of prime entry listed above are replaced by:
bank report printout
sales report printout
purchase report printout
Cashbook
As outlined above, the cashbook is both a book of prime entry and a ledger account. It can be in columnar form combining cash and bank transactions.
Cashbook (Bank Account)
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| Date | |
Particulars | |
FOL | |
Cash | |
Bank | |
Date | |
Particulars | |
FOL | |
Cash | |
Bank |
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| 1-1- | |
Balance | |
b/d | |
250 | |
4000 | |
6-1- | |
Cash | |
Purch | |
80 | |
150 |
| 10-1- | |
Cash sales | |
60 | |
400 | |
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9-1- | |
Creditors | |
12 | |
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6800 |
| 15-1- | |
Debtors | |
30 | |
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9000 | |
12-1- | |
Machinery | |
42 | |
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4200 |
| 18-1- | |
Loan | |
75 | |
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2000 | |
31-1- | |
Contra | |
C | |
250 | |
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| 31-1- | |
Contra | |
C | |
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800 | |
31-1- | |
Balance | |
c/d | |
250 | |
4800 |
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650 | |
15800 | |
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650 | |
15800 |
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| 1-2- | |
Balance | |
b/d | |
250 | |
4800 | |
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The transfer of 250 from the cash account to the bank account is marked off in the folio column with a 'C' for contra.
Sales Ledger
The sales daybook (journal), normally in analysis form, records sales invoices. It is not a ledger account.
The individual debtor ledger accounts are debited from the daybook (journal), and the total is credited to sales accounts. The sales daybook (journal) provides opportunities to analyse sales. Such analysis provides a crosscheck total.
Purchase Ledger
This works in the same way as the sales daybook (journal). It provides and minimises postings to the ledger accounts. Individual postings are credited to the purchase ledger (suppliers') accounts, and the total, probably in analysis form, is debited to purchase accounts.
General Ledger
The journal is used for transactions that do not fit in to any other book of prime entries. Such transactions might be opening and closing entries; sale of assets on credit; correction of errors; transfers between accounts.
Cashbook (Bank Account)
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| DATE | |
DESCRIPTION | |
FOL | |
DR | |
CR |
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| 0-1- | |
Machinery account | |
25 | |
2000 | |
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Purchases | |
177 | |
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2000 |
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Being new process camera for printing
department incorrectly put to purchases
for resale | |
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| 23-1- | |
Profit & Loss a/c | |
15 | |
2300 | |
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To bad debts provision a/c | |
34 | |
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2300 |
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Being a provision of 2.5% of sales in
anticipation of future bad debts | |
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Note that each entry is supported by a narrative that explains the entries.
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