What is a Nominal Ledger?

A Nominal Ledger, also known as a General Ledger, is an account that holds the transactions for any type of account i.e. Income, Expenses, Asset or Liability. When you look at the nominal ledger account for one account e.g. electricity, you can see all the transactions that make up the total cost of electricity for your business. Where does a nominal ledger come from? Before we had computers we did all accounts with pen and paper, with books called daybooks to record journals (transactions for each day) and big books called ledgers. The main ledgers we deal with on a regular basis are Debtors Ledger (Sales Ledger, Accounts Receivable Ledger) Creditors Ledger (Purchases Ledger, Accounts Payable Ledger) Bank Ledger (Current a/c) The following journal books (daybooks) were kept: The Purchases Journal Daybook (usually called the purchases book) The Bank Payments Journal Daybook (usually called the payments book) The Sales Journal Daybook (usually called the sales book) The Bank Receipts Journal Daybook (usually called the receipts book) The General Journal Daybook For each supplier we had a ledger card recording each invoice we received from that supplier and each payment made to that supplier, allowing us to calculate how much we owed that supplier. For each customer we had a ledger card recording each invoice we sent to that customer and each receipt we received from that customer, allowing us to calculate how much that customer owed to us. How are the nominal ledger accounts created? The journal daybooks and the ledger cards, allowed us to keep a record of who we bought from and who we sold to. But to find out exactly what type of expenses were incurred and what type of income we earned we created income, expense, asset and liability accounts and these are the nominal ledger (general ledger) accounts. These nominal (general) accounts were kept in a ledger! From these nominal ledger accounts we are able to produce a Profit & Loss statement (P&L) and a Balance Sheet. Let us explain with examples of transactions and at the end of the complete article you will understand what is a nominal ledger account, what goes into it, what the values in it mean and how to total it.

The Purchase Journal Daybook, page 1 Date 3/1/06 Details Service & Parts Co. Inv 39516 TOTALS Foliof SER01 Total 121.00 121.00 Net 100.00 100.00

21

21

The Bank Payments Daybook, page 1 Date 14/1/06 Payee Service & Parts Co. TOTALS The Sales Journal Daybook, page 1 Date 2/1/06 10/1/06 21/1/06 Details JB & Co. Ltd JB & Co. Ltd Red Tails Ltd TOTALS The Bank Receipts Journal Daybook, page 1 Date 9/1/06 15/1/06 Payer JB & Co. Ltd Red Tails Ltd TOTALS With the transactions above we can record these in our Debtors, Creditors and Bank ledger and find out who owes us money, who we owe money to, and how much money we have in the bank. But we still don't know if we have made any money. If there is a profit, then how much. To calculate our profit we need nominal ledger accounts. Note: Folio JBC01 RED01 No. 101 102 103 Folio JBC01 JBC01 RED01 Total 1210.00 1135.00 605.00 2950.00 Net 1000.00 1000.00 500.00 2500.00 No. 1045 Folio SER01

Amo 500

500

210 135 105

450

Amo 1135 1210

2345