The ledgers

The Ledgers

All transactions are recorded in ledger accounts, which simply means individual records ('accounts') of every major type of asset and liability, income and expense (and also the owner's capital). 'Ledger' is the collective noun for a group of accounts. There are in fact three key sub-divisions of the 'ledger':

q  The sales ledger, which contains all the individual accounts relevant to the business's debtors, i.e. those customers who buy from the business on credit terms (they are sent an invoice rather than paying straight away). This, unsurprisingly, might also be called the 'Debtors ledger'.

q  The purchases ledger, which contains all the individual accounts relevant to the business's creditors, i.e. suppliers from whom the business has bought goods or services on credit terms (they have received an invoice rather than paying immediately). Alternatively, this can be called the 'Creditors ledger'.

These two ledgers are 'personal' ledgers, as each account they contain bears the name of a customer or supplier.

q  The third ledger, known as the general ledger (or 'nominal ledger') is referred to as being 'impersonal', as it contains all accounts other than those of debtors and creditors. Examples include asset accounts such as 'machinery', 'motor vehicles' and 'computers', liability accounts such as 'loans payable', income accounts such as 'sales' and 'rent receivable' and expense accounts such as 'purchases' (cost of goods for resale), 'wages', 'stationery' and 'advertising'. It also contains the 'capital' account.

An important sub-division of the general ledger is the cash book, which contains two accounts - 'bank' and 'cash', which tend to have many more entries than any other accounts. The bank account records all payments into and out of the bank, the cash account records all cash paid into or out of the business. Additionally, there might be a petty cash book which records all the relatively minor office expenses such as tea and coffee, car parking costs etc.

Summary of the ledger - The ledger (all the business accounts) divided into:

Personal Ledgers		Impersonal Ledger
Sales Ledger (or 'Debtors')	Purchases Ledger (or 'Creditors)	General ledger (or 'Nominal Ledger')
Accounts for each of the customers who buy on credit	Accounts for each supplier of goods and services who is allowed credit	All other accounts, but note that the bank and cash accounts are shown in a separate cash book, and there might be a petty cash book