The document discusses general and subsidiary ledgers. It defines general ledgers as the aggregate of all ledger cards that classify transaction amounts by account codes. Subsidiary ledgers contain detailed transaction records for control accounts in the general ledger. The accounting system structures ledgers into the general ledger and subsidiary ledgers based on monthly reporting requirements and balance control needs. Transactions are recorded in registers and then posted to the appropriate ledger cards. Errors must be resolved to balance the ledgers at month and year-end.
The document discusses general and subsidiary ledgers. It defines general ledgers as the aggregate of all ledger cards that classify transaction amounts by account codes. Subsidiary ledgers contain detailed transaction records for control accounts in the general ledger. The accounting system structures ledgers into the general ledger and subsidiary ledgers based on monthly reporting requirements and balance control needs. Transactions are recorded in registers and then posted to the appropriate ledger cards. Errors must be resolved to balance the ledgers at month and year-end.
The document discusses general and subsidiary ledgers. It defines general ledgers as the aggregate of all ledger cards that classify transaction amounts by account codes. Subsidiary ledgers contain detailed transaction records for control accounts in the general ledger. The accounting system structures ledgers into the general ledger and subsidiary ledgers based on monthly reporting requirements and balance control needs. Transactions are recorded in registers and then posted to the appropriate ledger cards. Errors must be resolved to balance the ledgers at month and year-end.
Chapter objectives At the end this chapter, you will be able to: • Define general and subsidiary ledger • Analyze the relationship that exists between controlling and subsidiary ledger • Explain how ledgers in FGE accounting system are structured into general & subsidiary ledger • Identify the ledgers in FGE accounting system easily based on its organization • List the activities in finance section at the end of the month and the budget year. 2.1. Description of Ledgers A ledger is the entire group of accounts maintained by an accounting unit. It summarize the transaction information from registers in the form of accounts that facilitate reporting of financial results. Transactions are recorded in the register, but reports are produced from the ledgers. Two types of ledgers are maintained in the FGE accounting system: I. General Ledgers and II. Subsidiary Ledger General Ledgers It is the aggregate of all ledger cards. It is a set of self-balancing ledger cards. The general ledger is maintained to classify information reported in the Register by respective account codes. All transaction amounts recorded in the Register are entered on ledger cards in the general ledger. The balances for all individual accounts are maintained in the general ledger. Subsidiary Ledger A control account is an account in the general ledger that maintains the total balance of all related accounts in a subsidiary ledger. A subsidiary ledger is a ledger that is separate from the general ledger and contains transaction details of each control account in the general ledger. Any account in the general ledger that requires more detail than simply the total account balance becomes a control account with a Subsidiary Ledger. Cont--- A subsidiary ledger is not a set of self-balancing accounts. A subsidiary ledger's total debits and credits equal the balance in the corresponding control account in the general ledger. For example, total of advances to staff is a control account in the general ledger, but the amount owed by each staff member is a subsidiary ledger account in the subsidiary ledger. The purpose of control accounts and subsidiary ledger accounts is: to facilitate the report generation process, minimize the size of the general ledger and maintain sufficiently detailed records regarding account balances to assist proper financial management. Structures and Organization of Ledgers • Structure is about the relationship that exists between general and subsidiary ledger and • organization is about the systematic grouping in general ledger. Structure of Ledgers There are two criteria define whether an account code is a control account with a related subsidiary ledger: I. Monthly reporting requirements II. Management and control of the account balance Cont’d Recurrent and Capital Expenditure An accounting unit is required to report recurrent and capital expenditures at the level of each BI managed by it. Expenditure control accounts are maintained in the general ledger for each item of expenditure and type of budget. In order to also track and report actual expenditure at the level of each BI managed by the accounting unit, a subsidiary ledger is maintained for each expenditure control account by BI. Accounts in the subsidiary ledger provide information on total expenditures by type of budget and item of expenditure for each BI managed by the accounting unit. Revenue An accounting unit is required to report revenue at the level of the accounting unit and not the level of each BI managed by it. In order to record and report actual revenue at the level of the accounting unit, an account should be maintained in the general ledger for each item of revenue by account code. The general ledger provides information on total revenues by item of revenue for the accounting unit as a whole. Since there is no reporting requirement at the level of each BI, a subsidiary ledger is not maintained for items of revenue. Other Accounts
Other categories of accounts maintained in the general ledger
include: Transfers Cash and Cash Equivalents Receivables Payables Letters of Credit Net Assets/Equity An accounting unit is required to report on accounts in these categories at the level of the accounting unit only and not at the level of each BI managed by it. However, some of these account categories contain control accounts with Subsidiary Ledgers. CONT---
Transfers: Transfers accounts typically are not control
accounts and have no related Subsidiary Ledgers. Cash and Cash Equivalents: Cash and Cash Equivalents accounts typically are not control accounts and have no related Subsidiary Ledgers. If the accounting unit controls more than one safe, a Subsidiary Ledger is needed for each safe under the general ledger control account for Cash in Safe. Receivables, Payables, and Letters of Credit: those accounts typically are control accounts with related Subsidiary Ledgers. Accounts in the Subsidiary Ledgers identify individual items under the control account. In summary structure of account is as follow 2.2. Organization
Organization: The general ledger is organized into
seven broad categories comprising: 1. Revenue, Assistance or Loan accounts in sequence of the account codes 2. Expenditure accounts in sequence of the account codes 3. Transfer accounts in sequence of the account codes 4. Asset accounts in sequence of the account codes 5. Liability accounts in sequence of the account codes 6. Letters of Credit accounts in sequence of the account codes 7. Net Asset/Equity account The subsidiary ledger is organized by the related control account maintained in the General Ledger. 2.3. Recording Entries in Ledgers Recording Transactions into the Ledger Card of the General Ledger Each transaction recorded in a register is also recorded in the related general ledger. Each transaction is recorded in two separate ledger cards because two accounts are affected by each transaction. Each account is recorded on its appropriate ledger card in the general ledger immediately after it is recorded in the register. The only source document to the general Ledger is the register. Recording Transactions into the Foreign Currency Cash Account Ledger Card
The cash account ledger card for Account Code
4102 "cash at bank in foreign currency" requires a special format. This account code, and only this account code, maintains a balance in Birr and in foreign currency denomination. The same information is recorded in the foreign currency transaction Register. Cont--- The foreign currency cash account ledger card is identical to any other ledger card, except that the amount of each transaction recorded from the foreign currency transaction register is recorded on the card twice: I. once in Birr and II. once in foreign currency. In addition, the net cumulative balance of the account is kept in both currencies. Cont--- Recording Transactions into the Ledger Card of the Subsidiary Ledger A ledger card in the subsidiary ledger is maintained only for control accounts in the general ledger. Transactions are recorded on the appropriate ledger cards in the subsidiary ledger from the register immediately after they are recorded in the ledger cards in the general ledger. The only source document for the subsidiary ledger is the register. Cont---
Month end activities related to General and subsidiary
ledgers The general ledger account balances must be determined at the end of each month. The total cumulative balance of all debit and credits on all ledger cards in the general ledger must be in balance. Where the net cumulative debits and credits recorded on all ledger cards in the General ledger are imbalance, an error exists. Cont--- The following types of errors should be verified to balance the general ledger 1. An incorrect amount is transcribed into the Ledger Card from the Register. 2. An amount is incorrectly posted into the credit column of a ledger card in the general ledger instead of into the debit column, and vice versa. 3. Only one side (either debit or credit) of a transaction is posted into the general ledger and the other portion (either debit or credit) of he transaction is not posted into the general ledger. 4. An arithmetic error has occurred in the computation of the net debit or credit balance of a ledger card in the general ledger. 5. Permanent account balances are not carried forward correctly from the previous year. Cont--- The following types of errors should be verified to balance the subsidiary and general ledgers: • An incorrect amount is transcribed into the ledger from the register. • An amount incorrectly posted into the credit column of a Ledger Card in the subsidiary ledger instead of into the debit column, and vice versa. • An arithmetical error has occurred in the computation of the net debit or credit balance of a ledger card in the subsidiary ledger. • Permanent accounts balances are not carried forward correctly form the previous year. Year end activities related to General and subsidiary ledgers In addition to the monthly routines, at the end of each year, a transfer of the debit or credit balances to the Net Assets/Equity account is required to close the temporary accounts in the general ledger. The closing entry is the last entry made at the end of the fiscal year after all other transactions are captured. The closing entry ensures that temporary accounts start each fiscal year with a zero balance. The general ledger begins each new fiscal year with carry forward balances in the permanent accounts from the previous year Cont--- Any subsidiary ledger corresponding to a temporary account in the general ledger also is considered closed. A new subsidiary ledger is started each year for each temporary control account. All accounts in the new subsidiary ledger begin the year with a zero balance. Accounts in other account categories are permanent accounts and are not closed each year. Any subsidiary ledgers corresponding to permanent account in the general ledger also carry forward to the next year. e r pt h a e c ! !! Th o u o f k y n d a n E Th