Chapter 5

LEDGER ACCOUNTS
AND DOUBLE ENTRY


Learning Objectives
1.
2.
3.
4.
5.
6.

The nominal ledger
The accounting equation
Double entry bookkeeping
The journal and imprest system
Day book analysis
The receivables and payables ledgers

2


The nominal ledger
Ledger accounting:
Is the process by which a business keeps a
record of its transactions:
– In chronological order
– Built up in cumulative totals
A ledger account or ‘T’ account looks like this.


Drawings

Investment of funds with
the intention of earning a
return

Amounts withdrawn
from the business by
the owner

The accounting equation is based on the principle that an
entity is separate from the owner.
5


The business equation
P
P == II ++ D
D –– C
Cii
P = profits
I = increase in the entity’s net assets over a period
D = drawings
Ci = increase in capital thanks to an injection of
funds by the owners

6



Credit

• An increase in an
expense
• An increase in an asset
• A decrease in a liability

• An increase in income
• An increase in a liability
• A decrease in an asset

9


Double entry bookkeeping
• The rules of double entry bookkeeping are best
learnt by considering the cash book.
• A credit entry indicates a payment made by the
business; the matching debit entry is then made in
an account denoting an expense paid, an asset
purchased or a liability settled.
• A debit entry in the cash book indicates cash
received by the business; the matching credit
entry is then made in an account denoting
revenue received, a liability created or an asset
realised.
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The journal and imprest system

reference not shown).

14


Day book analysis
• To identify sales by product, total sales
would be entered (‘posted’) as follows.

• Other books of prime entry are analysed in
a similar way.
15


The receivables and payables ledgers
Trade accounts receivable and payable
Trade account receivable
A customer who buys
goods without paying for
them straight away (an
asset).

Trade account payable
A person to whom a
business owes money (a
liability).

Also known as a debtor

Also known as a creditor

way.
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