2. The nominal ledger

Question 1

Define the nominal ledger.

Answer 1

The nominal ledger is the main accounting record in which financial transactions are recorded.

The nominal ledger contains details of assets, liabilities, capital, income and expenditure, and therefore profit and loss. It consists of a large number of different ledger accounts, each account having its own purpose or ‘name’ and an identity or code.

Question 2

How are ledger accounts arranged in a computerised accounting system?

Answer 2

In a computerised accounting system, each ledger account is assigned a unique code.

The unique codes are normally assigned in such a way that related or similar ledger accounts will have consistent coding.

For example, administrative expenses may have the code 100000, telephone expenses may be 100100, rent expenses 100200 etc. This means that expense categories will appear sequentially when data is extracted from the accounting system.

Question 3

Give an example of ledger accounts relating to non-current assets that appear in the nominal ledger. (4)

Answer 3

1. Plant and machinery at cost
2. Plant and machinery, accumulated depreciation (deduction from non-current asset)
3. Motor vehicles at cost
4. Motor vehicles, accumulated depreciation (deduction from non-current asset)

Question 4

Give an example of a ledger account relating to capital that appear in the nominal ledger.

Answer 4

1. Owner’s capital

Question 5

Give an example of ledger accounts relating to current assets and current liabilities that appear in the nominal ledger. (4)

Answer 5

1. Inventories (current asset)
2. Trade receivables (current asset)
3. Trade payables (current liability)
4. Total cash/bank overdraft

Question 6

Give an example of ledger accounts relating to expenses that appear in the nominal ledger. (6)

Answer 6

1. Wages and salaries
2. Rent and local taxes
3. Advertising expenses
4. Bank charges
5. Motor expenses
6. Telephone expenses

Question 7

Give an example of ledger accounts relating to income that appear in the nominal ledger.

Answer 7

Sales

Question 8

How does a computerised accounting system use the nominal ledger to prepare the financial statements?

Answer 8

A computerised accounting system will use the code assigned to each nominal ledger account to automatically classify each account into the elements of the financial statements. The income and expense ledger accounts will together form the statement of profit or loss, while the asset, capital and liability ledger account will together form the statement of financial position.

Question 9

What form does the T-account format take to present the entry of a transaction into a ledger account?

Answer 9

There are two sides to the account, with an account heading on top. The lines form a ‘T’, so this is what we mean by a ‘T’-account.
On top of the account is its name.
There is a left hand, or debit side.
There is a right hand, or credit side.