General Ledger and Concept of Accounting

The nominal ledger is an accounting record which summarizes the financial affairs of the business. It is also called general ledger.It includes details of assets, liabilities, capital, income and expenditure, and so profit and loss. It consists of a large number of different accounts, each account having its own purpose or name and identifies or code.

Examples of accounts in the nominal ledger include the following

• a. Plant and machinery at cost (non current asset)
• b. Motor vehicle at cost (non current asset)
• c. Plant and machinery, provision for depreciation (liability)
• d. Motor vehicle, provision for depreciation (liability)
• e. Proprietor’s capital (liability)
• f. Inventories- raw materials (current asset)
• g. Total trade account s receivable (current asset)
• h. Total trade accounts payable (current liability)
• i. Wages and salaries (expense item)
• j. Rent and local taxes (expense item)
• k. Advertising expenses (expense item)
• l. Bank charges (expense item)
• m. Motor expenses (expense item)
• n. Telephone expenses (expense item)
• o. Sales (revenue item)
• p. Total cash or bank over draft (current asset or liability)

How to draw the ledger account:

There are two sides of the account with an account heading on the top, and also called as T account.

There is a left hand side, or debit side.

There is a right side, or credit side.

Double Entry Bookkeeping:

Double entry bookkeeping is a method which is used to transfer weekly/ monthly total from book of prime entry into the nominal ledger. Concept of double entry implies that every transaction has two effects.

Rules of double entry book keeping:

A double entry bookkeeping is a method by which a business record financial transactions. An account is maintained for every supplier, customer, asset, liability, and income and expense. Every transaction is recorded a twice so that every debit is balanced by credit.

Rules of debits and credits:

1. An increase in expense (eg a purchase of stationery ) or an increase in an asset ( eg purchase of office furniture ) is debit.
2. An increase in revenue ( eg a sale) or an increase in a liability (eg buying goods on credit) is a credit.
3. A decrease in an asset (eg making a cash payment ) is credit.
4. A decrease in a liability (eg paying a creditor) is a debit.