A ledger is a book that houses all the accounts of a business firm. At the end of every accounting period, the ledger is balanced to have the balances carried forward to other accounting period. These balances carried forward (C/F for short) become the opening balances in subsequent period. The entries in this ledger are made in line with the principles of double entry.
The Concept of Double Entry
The concept of double entry depicts that for every debit entry, the must be a corresponding credit entry in the account and vice versa. Irrespective of the processing system in use, be it manual or computerized system, the principle implies that every transaction must affect two accounts at the same time. This means that if one account is debited, another account must be credited for every transaction for the posting to be completed. The idea is that if money, for instance, must change hands, one person must give (credited) while another person must receive (debited).
The account that gives is credited while the account that receives is debited.
For T-Form account, the double entry divides the account into left-hand side (called the debit side) and the right-hand side (called the credit side).
The ledger is usually divided into three main groups namely:
- The sales ledger
- The purchases ledger and
- The general ledger.
Having looked at the ledger, let’s see how the accounts are classified.
Accounts are majorly classified into two groups – personal account and the impersonal account.
Personal accounts are accounts of persons. Recall that entities are also regarded as person as discussed in the entity concept
Thus, personal accounts are accounts that record the transactions of persons (including entities), bank accounts, capital account as well as debtors and creditors’ accounts.
Impersonal accounts are again divided into two – nominal account and real account.
Nominal accounts are accounts of incomes and expenses eg sales account, telephone account, etc.
Real accounts are accounts of tangible assets ie accounts of items that can be seen and touched. Examples include motor vehicle account, computer account, buildings account, etc.
Note
As real accounts refer to tangible assets, it follows that accounts of intangible assets such as goodwill, copyright, etc are nominal accounts.
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