The General (or Nominal) Ledger, is frequently known as “The Nominal” in the UK, or "Chart of Accounts" in accounting software.
All accounting is done in "accounts"
, which are “boxes” or “cells” or “pockets” designed so that similar transactions can be grouped together
(Not to be confused with "Year End Accounts
" which are the business's Financial Statements and Reports.)
Here are some examples of "accounts" in the General Ledger:
• All stationery purchases appear in the "Stationery Account"
• Insurance costs appear in the "Insurances Account"
• Sales go in the "Sales Account"
Bank transactions (in and out) go in the "Bank Account"
which lives in the General Ledger
, and replicate the transactions which go in and out of the actual bank account at the bank.
Sometimes, businesses like to have one account which groups together a wider range of transactions eg. a "Printing Postage & Stationery Account" - so these are similar enough to be grouped together in one account. Other businesses will split these into separate accounts if they prefer it.
The Corporation Tax Return
for a Limited Company
does require a categorisation of expenses.
You can have as many, or as few, accounts as you want - and you can call them what you want.
The main thing to bear in mind is who might read the reports and will they understand them, especially HMRC
. If your Year End Accounts
have to be filed publicly (for example limited companies in the UK) then there are certain rules for categorizing the various accounts and transactions so that they can be commonly understood.
Accounts in Accounting Software
The General (or Nominal) Ledger, is frequently known as Chart of Accounts
in accounting software.
The Chart of Accounts will be divided into two sections for the accounts of the Balance Sheet
and the accounts of the Profit and Loss Account
The Balance Sheet
accounts are either Assets
The Profit & Loss Account
accounts are either Sales
or Purchases / Expenses
Also, in modern software
can be separated into sub-accounts
, which can be a big help for categorizing and grouping together.
Some businesses have one Sales Account
to record all the sales, but others will have a Sales Account for each Product Group, or even for each Product. So some businesses like sales all lumped together, while others like to separate them out so that they can analyze them better.
If your business is a larger business trading overseas, there will probably be a government requirement to report these sales separately, so it would be a good idea to set up your computer software to do this automatically.
For example, you could have an Office Expenses Account
which could have separate sub-accounts
for Stationery, Postage, Computer Consumables, etc.
Debits and Credits
All the accounts
, when grouped together are the General Ledger
or Nominal Ledger
or Chart of Accounts
And into these accounts
go the transactions
, that is the sales, the bills, the payments, the investments etc.
All transactions are entered to the General Ledger as Debits and Credits
Please click the Debits and Credits
link for a more detailed explanation.