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Ledger - Business Studies Form 3

Consumer Stores Ledger


MEANING AND FORMAT OF LEDGER ACCOUNT

A ledger account has two sides namely; debit side and credit side. The format of a ledger account appears as "T" as demonstrated.

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RULES OF RECORDING BUSINESS TRANSACTIONS IN A LEDGER ACCOUNT

Normally transactions resulting in decreases are recorded on one side while those resulting to increases are recorded on the other side as follows.


RECORDING BUSINESS TRANSACTIONS IN VARIOUS LEDGER ACCOUNTS

To record business transactions in a ledger, the concept of double entry and the rules of recording business transactions in the ledger must be obeyed.

Example:

1] On 1st August Mwende started a business worth ksh 150,000 in cash.

2] On 10th August Mwende bought a vehicle from Tm motors worth ksh 1,000,000 on credit.

3] On 11th August Bought stationary by cheque worth ksh 10,000.

4] On 12th August, Bought stock worth ksh 5,000 in cash.

5] On 14th August Sold goods worth ksh 2,000 to Otieno on credit.

6] On 16th August Returned goods worth ksh 100 to Mude stores.

7] On 17th August Bellah returned goods worth ksh 150 to Mwende.

8] On 18th August Paid ksh 1000 for electricity expense in cash .

9] On 20th August Mwende received a commission of ksh 200 by cheque.

Record the above transaction in the various ledger accounts.

The following illustration shows how to make entries in relevant ledger accounts.


BALANCING OF A LEDGER ACCOUNT

An account balance means the mathematical difference between the two totals of the debit and credit sides which must be equal as demonstrated below;

Note; c/d and b/d should appear on details column.

The date for c/d and b/d must be the date when the last transaction on a particular account took place.

Remember to double underline the two grand totals on both sides

 

EXTRACTING A TRIAL BALANCE FROM LEDGER ACCOUNT BALANCES
A trial balance is a statement prepared at a particular date showing debit and credit balances extracted from ledger accounts.A trial balance has three columns namely;details,debit and credit.
The total values of debit and credit columns must be equal.

Extract a trial balance as at 20th August 2010 from Mwende ledger accounts.





CLASSIFICATION OF ACCOUNTS

Personal accounts refer to accounts of persons mainly debtors and creditors.

Impersonal accounts refer to all other accounts that are non personal.These accounts are subdivided into:-


  • Real accounts refer to accounts of tangible assets such as land,
    buildings and cash among others.
  • Nominal accounts refers to accounts of items that relate to revenues and expenses.
  • Private accounts refer to accounts which a business considers confidential for example capital, drawing,investment, profit and loss among others.

TYPES OF LEDGERS

  • Sales/debtors ledger :
    where accounts for individual debtors are kept.
  • Purchases/cerditors/bought ledger: where accounts of individual creditors are kept.

  • Cash book : where the cash in hand and cash at bank accounts are kept.

  • Nominal ledger : where accounts of revenues and expenses are kept.

  • Private ledger : where the business owner's confidential accounts are kept.
  • The general ledger: where all other accounts not contained in the specialised ledgers are kept.

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