PAPER IE01: PRINCIPLES OF ACCOUNTING

Lecture Sheet – 15
(Class 30)

Learning outcomes
Indicative syllabus content
On completion of their studies students should be able to:
Lead Component Level
2. General ledger (a) List special journals; 1 • Present different types of journals.
(GL) system. (b) Define chart of accounts; 1 • Design chart of accounts.
(c) Identify types of ledger accounts; 2 • Classify the ledgers with their objectives.
(d) Distinguish between general 2 • How general ledger and subsidiary
ledger and subsidiary ledgers. ledger can provide more classified
information.

Ledgers include:
Sales ledger, records accounts receivable. This ledger consists of the financial transactions
made by customers to the company.

Purchase ledger records money spent for purchasing by the company.

General ledger representing the five main account types: assets, liabilities, income, expenses,
and capital.

Objectives of Ledger Accounts

The following are main objectives of ledger accounts

1. Classification and Recording of Business Transactions

The ledger classifies financial transactions into different subjects (income, expenses, assets
etc.) and makes a permanent records of all the transactions systematically.

NASER MOHD HELAL ACMA, FCCA, MBA, BBA, LLB Page 1 of 2

PAPER IE01: PRINCIPLES OF ACCOUNTING

2. To Provide Check on Arithmetical Accuracy

The fundamental double-entry principle provides that debit is always equal to credit or vice
versa. Since the ledger account is prepared under the double-entry system, it helps to prepare
a trial balance that provides a check on the arithmetical accuracy of the recording transactions
in the books of accounts.

3. To Help Ascertain Profit or Loss

The ledger is a book of accounts relating to all the financial transaction of the business. It
contains the accounts of all expenses, losses, incomes and gains. Therefore it helps to prepare
the profit and loss account of the business so as to ascertain the profit earned or loss suffered
during a specified period.

4. To Help Reveal The Financial Position

The ledger also contains the accounts of the financial transactions relating to capital, all
liabilities and assets of the business. With the help of the balances of these accounts and profit
and loss of the business, a balance sheet may be prepared to show its financial position at a
certain point in time.

5. Detailed Financial Information

Ledger accounts provide financial information about expenses, income, debtors, creditors etc.

Key Differences between General Ledger and Sub Ledger

General Ledger (GL) Sub Ledger (SL)

It is a set of master accounts where
accounting transactions are recorded.
Examples of the GL are account receivable,
account payable, cash management, bank
management, and fixed asset.
The groups of transactions have different
characteristics.
There can be only one ledger account.
It contains a limited volume of data.
It has a chart of accounts.
There is no such requirement for the ledger
account.
It controls the sub-ledger.
The trial balance is prepared by using a
general ledger.
Sub-ledger is an intermediary set of accounts
linked to the general ledger.
Examples of sub-ledger are customer
accounts, vendor accounts, bank accounts,
and fixed assets.
The groups of transactions have common
characteristics.
There can be many sub-ledger accounts.
It contains a large volume of data.
It does not have charts of accounts.
The total of the Subsidiary ledger should
always match with the line item amount on
the general ledger.
It is part of the general ledger.
The trial balance is not prepared by using a
general ledger.

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