{m}.{s}.1Summary: Ledgers

  • The nominal (or general) ledger contains accounts for all the income, expense, asset, liability and capital accounts required in a business.
  • The sales ledger contains accounts for each credit customer. (This is a breakdown of the Debtors account in the nominal ledger.)
  • The purchase ledger contains accounts for each credit supplier - suppliers of both goods and services. (This is a breakdown of the Creditors account in the nominal ledger.)

Ledgers will take many different forms in practice. They may be manual books or may be computerised.

{m}.{s}.2Summary: Adjustments

Before preparation of the profit and loss account and balance sheet, several adjustments will be required.

These include:

  • Stock adjustment
  • Accruals and prepayments
  • Depreciation
  • Correction of errors

These are entered in the books as journal entries.

In this lesson we considered the general recording of adjustments, including the correction of errors. Other special adjustments will be considered in later lessons.

{m}.{s}.3Types of errors

Errors of transposition

Where two adjacent figures in an amount are reversed.

Errors of omission

Where an entry or part of an entry has been left out.

Errors of Principle

Where some fundamental accounting principle has been contravened, often the wrong class of account has been used.

Errors of Commission

Where the correct amount is entered in the wrong account, but it is the right class of account.

Errors can result in:

A trial balance still balancing

  • Reversal of debits and credits
  • Entry in the wrong account (mistake or error in principle)
  • Omission of entry
  • Incorrect figure used for both debit and credit
  • Compensating errors

Or a trial balance out of balance:

  • Omission of one part of an entry
  • Error in the entry of one figure in an account
  • Account balance incorrect
  • Incorrect addition of column(s)

 

{m}.{s}.4Capital/revenue expenditure

Capital expenditure

  • Expenditure to purchase or improve fixed assets (includes such things as delivery and installation costs).
  • Belongs in the Balance sheet.

Revenue expenditure

  • Expenditure for running the business on a day-to-day basis (this will include the cost of repairing and maintaining fixed assets).
  • Belongs in the Profit and loss account.