CARA'S TIPSThe ledger, types of account, rules of double entry, posting and balancing
WAECNECO
What the syllabus asks
WAEC: definition, contents, format and uses; types (cash book, personal and impersonal ledgers); preparation of ledgers. Topic 5, Principle of Double Entry: meaning and rule; posting transactions into the ledger. Extends fa3.
NECO: definition, contents, format and uses; types (cash book, personal and impersonal ledgers); preparation of ledgers. Topic 5, Principle of Double Entry: meaning and rule; posting transactions into the ledger. Extends fa3.
What you will learn
- Define the ledger and state its contents and uses.
- Draw T-account and running-balance formats.
- Distinguish the types of ledger and classes of account.
- State and apply the principle and rules of double entry.
- Analyse transactions into debits and credits.
- Post transactions and balance accounts.
- Extract a trial balance from ledger balances.
- Separate capital and revenue items in posting.
Key points
- The ledger classifies; day books list in date order.
- Details column names the other account.
- Sales and purchases ledgers are personal; the general ledger is impersonal.
- Real accounts are assets; nominal accounts are incomes and expenses.
- Every transaction: equal debit and credit.
- Assets, expenses and drawings increase on the debit.
- Liabilities, capital and incomes increase on the credit.
- Balance c/d on the smaller side, b/d on the opposite.
- Overdrawn bank shows a credit balance.
- Capital expenditure goes to asset accounts; revenue expenditure to expenses.
Start here: The ledger: definition, contents and uses
The ledger is the main book of account. It contains all the accounts of the business, each on its own page or pages, and it is where the double entry is completed. The books of original entry (bk2) are lists in date order; the ledger classifies the same information by account, so that you can see, for example, the whole history of what one customer owes, or the total rent paid this year.
Contents
A ledger contains accounts for: assets (land, van, stock, cash, bank); liabilities (loans, creditors); capital and drawings; incomes (sales, commission, rent received); expenses (purchases, wages, rent, electricity); and individual debtors and creditors. An index at the front lists accounts and their folio (page) numbers.
Uses of the ledger
- It completes the double entry and so gives an arithmetic check through the trial balance.
- It shows the balance on each account at any time: how much cash, how much owed by each customer.
- It provides the balances from which final accounts are prepared.
- It is a permanent, classified record for owners, auditors and tax officers.
- It helps control: an unexpected balance (rent paid twice) stands out.
The ledger is called the book of final entry
Because every transaction ends there, examiners also call it the principal book or book of final entry, in contrast to the books of original (prime) entry. The cash book is both: it is a book of original entry and it also contains the Cash and Bank accounts of the ledger.
A trader in Onitsha Main Market keeps a sales day book but no ledger. Give two pieces of information she cannot get quickly.
Solution. (i) How much each customer owes in total, since invoices and payments are scattered across many pages. (ii) The balances needed to prepare a trial balance and final accounts.
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Practice questions
- the main book in which accounts are kept
- a book of original entry only
- a list of customers
- a bank statement
Show answer
A: the main book in which accounts are kept
Principal book of account.
- two credits
- no credit
- a cash entry
- a corresponding credit of equal value
Show answer
D: a corresponding credit of equal value
Equal debit and credit.
- contra
- narration
- debit
- credit
Show answer
C: debit
Assets increase on the debit.
- sales account
- capital account
- cash account
- drawings account
Show answer
B: capital account
Cr Capital.
- rent
- bank
- capital
- sales
Show answer
A: rent
Expense debited.
Key words
- Ledger
- Book containing all the accounts.
- Account
- Record of one item, with debit and credit sides.
- Debit
- Left side of an account.
- Credit
- Right side of an account.
- Double entry
- Recording each transaction as an equal debit and credit.
- Personal account
- Account of a person or firm.
- Real account
- Account of an asset.
- Nominal account
- Account of an income or expense.
- Balance c/d
- Balance carried down to close a period.
- Balance b/d
- Balance brought down to open the next period.
- Folio
- Page reference to the other entry.
- Chart of accounts
- Coded list of all accounts.
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