FINANCIAL ACCOUNTING LECTURE NOTES BY MR. S FINANCIAL ACCOUNTING LECTURE NOTES BY MR. S. NDHLOVU TOPIC 4 TYPES OF ACCOUNTS, THE LEDGER AND TRIAL BALANCE TYPES OF ACCOUNTS The word accounts means “ history of.” it means a place where all the information referring to a particular asset or liability, or to capital, is recorded. The following are the types or classification of accounts: Personal Account: Accounts for debtors and creditors i.e. customers and suppliers. Examples of personal account are: Mwana, David, George, Ram, or Shyam, ABC Ltd, MC General Dealers, R. M Industries etc.

TYPES OF ACCOUNTS, THE LEDGER AND TRIAL BALANCE TYPES OF ACCOUNTS CONT’D Real Account: Accounts in which possessions or assets of a business are recorded. Examples are: buildings, machinery, fixtures, inventory, goodwill, patent, copyright etc. Nominal Accounts: Accounts in which expenses, losses, income and capital are recorded. The nominal account is also known as fictitious account because it does not represent any tangible asset. Examples are rent account, salary account, electricity account, interest received account, etc.

TYPES OF LEDGERS The ledger is the main or principal book of accounts. It is called the main book of account because each and every entry has to be posted to the ledger at the of the day. The process of transferring journal entries into the ledger is is known as posting to the ledger. The following are the ledgers commonly used: Sales Ledger or Receivable Ledger or Debtor’s Ledger: this is the ledger book for customers’ personal account.

TYPES OF THE LEDGERS CONT’D Purchases Ledger or Payable Ledger or Creditor’s Ledger: this is the ledger book for supplier’s personal account. General Ledger( Nominal Ledger): the ledger book for assets, liabilities, income, expenses, profit and loss. This leger book consists of a large number of different accounts and each account having its own name. * Cash Book: This is a special ledger book because the double entry system can be completed with the cash book. Example, the contra entry transactions ‘C.’

PREPARING AND BALANCING THE LEDGER ACCOUNTS Here we will look at the posting of the entries to the ledger. Entries from journals or books of prime entry will be transferred to the ledger books. BALANCING LEDGER ACCOUNTS At the end of an accounting period, a balance is truck on each account in turn. This means that all the debits on the account are totalled and so are all the credits. If the total debits exceed the total credits, there is said to be a debit balance on the account; and if the credit exceeds the debits then the account has a credit balance. Examples given, followed by classroom exercises.

THE TRIAL BALANCE A Trial Balance is a list of leger balances shown in debit and credit columns. It prepared in order for us to check the arithmetical accuracy of our work i.e. whether the debit is equal the credit. With the information from the trial balance, we can prepare the final accounts such as income statement and the balance sheet. The trial balance will be looked further when covering errors not revealed by trial balance.

TRIAL BALANCE CONT’D Objectives of Trial Balance The following are the objectives of preparing trial balance: To ascertain the arithmetical accuracy of the ledger accounts To help in locating errors To help in the preparation of final accounts Examples on trial balance preparation to be given, thereafter followed by exercises