General Ledger (Grade 10 NSC Matric Accounting): Revision Notes
General Ledger
Introduction to the General Ledger
The General Ledger is a central component of the bookkeeping system for a sole trader. It serves as the main accounting record where all business transactions are recorded and organized. Understanding how to work with the General Ledger is essential for maintaining accurate financial records.
A General Ledger consists of two sides: the debit side and the credit side. This two-sided structure allows you to track increases and decreases in different types of accounts systematically. To use the General Ledger effectively, you need to understand which accounts belong on which side and how to classify them correctly.
The General Ledger acts as the "master record" of all financial transactions. Every transaction recorded in subsidiary journals must eventually be posted to the appropriate General Ledger accounts.
Understanding account classifications
The DAX and CIL memory aids
To help you determine whether account balances should be recorded as debits or credits, you can use two helpful acronyms:
DAX represents:
- Drawings
- Assets
- Expenses
All DAX accounts maintain debit balances. When these accounts increase, they are debited, and when they decrease, they are credited.
CIL represents:
- Capital
- Income
- Liabilities
All CIL accounts maintain credit balances. When these accounts increase, they are credited, and when they decrease, they are debited.
Memorize DAX and CIL!
These acronyms are your essential tools for determining the natural balance of any account:
- DAX = Debit balance accounts (Drawings, Assets, Expenses)
- CIL = Credit balance accounts (Capital, Income, Liabilities)
This is one of the most fundamental concepts in accounting - understanding this will help you with every transaction you record.
Balance sheet accounts versus nominal accounts
General Ledger accounts are further divided into two categories:
Balance sheet accounts include items that appear on the balance sheet, such as assets, liabilities, and owner's equity. These accounts have ongoing balances that carry forward from one accounting period to the next.
Nominal accounts include income and expense items that appear on the income statement. These accounts are temporary and are closed at the end of each accounting period.
Think of balance sheet accounts as "permanent" and nominal accounts as "temporary." Balance sheet accounts continue indefinitely, while nominal accounts reset each period to measure that period's performance.
Structure of a General Ledger account
Each account in the General Ledger follows a standard format with specific columns and information requirements:
General Ledger format
| Dr (Debit side) | Account Name | Cr (Credit side) |
|---|---|---|
| Month | Day | Details |
Column explanations
Heading: The General Ledger heading must display the name of the business to identify whose records are being maintained.
Account name: The specific account name appears in the centre of the line, clearly identifying which account is being recorded.
Dr (Debit): This abbreviation indicates the debit side of the account, which appears on the left.
Cr (Credit): This abbreviation indicates the credit side of the account, which appears on the right.
Month and Year: The month and year when the transaction occurred must be recorded on both sides of the account.
Day: This column shows the specific day of the month when the transaction took place. When posting from a journal that uses columns, the day recorded is always the last day of the month. When posting individual transactions, the actual transaction date is used.
Details: This column shows the contra account, which is the other account affected by the transaction. The contra account helps create a complete picture of each transaction.
Fol (Folio): The folio reference indicates which journal the transaction came from. This creates an audit trail back to the source document.
Amount: This column records the monetary value of the transaction.
The contra account in the Details column is crucial - it shows you the other half of the double-entry transaction. Every debit must have a corresponding credit, and the contra account tells you where that corresponding entry is located.
Worked example: Stationery account
Worked Example: Stationery Account Entries
Let's examine a practical example using a Stationery account to understand how General Ledger entries work:
| Dr | Stationery | N8 | Cr |
|---|---|---|---|
| 20.. Apr | 1 | Balance | b/d |
| 31 | Bank | CPJ | |
| Petty cash | PCJ | ||
| Creditors control | CJ | ||
| Trading stock | GJ | ||
| 20.. May | 1 | Balance | b/d |
Step-by-step explanation
1. Account identification: The account name "Stationery" identifies this as a stationery expense account.
2. Folio number: The designation "N8" indicates this is a nominal account (expense), assigned folio number 8.
3. Opening balance: The balance brought down (b/d) at the beginning of April must be recorded. Since stationery is an expense, it has a debit balance. This represents stationery already purchased but not yet used up.
4. Bank payment for stationery: When more stationery is purchased using the bank account, the stationery account is debited (increased). The contra account is Bank, and the transaction comes from the Cash Payments Journal (CPJ). The Bank account will be credited with the same amount.
5. Petty cash payment for stationery: When stationery is bought using petty cash, the stationery account is debited (increased). The contra account is Petty cash, and the transaction originates from the Petty Cash Journal (PCJ). The Petty cash account will be credited with the same amount.
6. Credit purchase of stationery: When stationery is purchased on credit, the stationery account is debited (increased). The contra account is Creditors control, showing this was a credit transaction. This entry comes from the Creditors Journal (CJ). The Creditors control account will be credited with the same amount.
7. Correction entry: This entry comes from the General Journal (GJ) and represents a correction of an error. Whether it's a debit or credit depends on the specific error being corrected. The contra account is Trading stock, meaning Trading stock will be credited with the same amount.
8. Stationery returned: When stationery purchased on credit is returned to the supplier, the stationery account is credited (decreased). The contra account is Creditors control, and the entry comes from the Creditors Allowances Journal (CAJ). The Creditors control account will be debited with the same amount.
9. Personal use of stationery: When the owner takes stationery for personal use, the stationery account is credited (decreased). The contra account is Drawings, showing the owner has taken business assets for personal use. This entry comes from the General Journal (GJ). The Drawings account will be debited with the same amount.
10. Totalling the account: Both the debit and credit sides must be totalled. The amounts should be written in pencil initially. The larger total is written in the space indicated as (10) on both sides.
11. Balancing the account: Since the totals on both sides differ, the account is mathematically unbalanced. The smaller amount must be subtracted from the larger amount. This difference is recorded as the "balance" and is entered on the side with the smaller total to make both sides equal.
12. Balance carried down: The balance is then transferred to the opposite side to indicate the opening balance for the new month. This balance brought down (b/d) represents the starting point for May's transactions.
Classification of General Ledger accounts
Understanding account classification is crucial for organizing financial information correctly. Here's a comprehensive overview:
Summary of account classifications
| DAX (Debit accounts) | CIL (Credit accounts) |
|---|---|
| Drawings (Owner's Equity - Balance sheet) | Capital (Owner's Equity - Balance sheet) |
| Assets (Balance sheet) | Income (Nominal) |
| Expenses (Nominal) | Liabilities (Balance sheet) |
Detailed classification of accounts
The following table provides an expanded view of specific accounts under each classification:
Debit accounts (DAX)
Owner's equity (Balance sheet):
- Drawings
Assets (Balance sheet):
Tangible assets:
- Land and buildings
- Vehicles
- Machinery
- Equipment
- Computers
Financial assets:
- Fixed deposits
- Investments
- Shares
- Unit trusts
Current assets:
- Trading stock
- Debtors/Accounts receivable
- Bank
- Cash float
- Petty cash
- Savings account
- Accrued income
- Prepaid expenses
- Consumables on hand
Expenses (Nominal):
- Cost of sales
- Interest on loans
- Bank charges
- Interest on overdraft
- Debtors allowances
- Other daily or monthly expenses (salaries and wages, water and electricity, stationery, etc.)
Credit accounts (CIL)
Owner's equity (Balance sheet):
- Capital
Income (Nominal):
- Sales
- Current income/Service fees/Fee income
- Rent income
- Commission income
- Interest on current bank account
- Interest on investment/fixed deposits
- Interest on savings account
Liabilities (Balance sheet):
Current liabilities:
- Creditors/Accounts payable
- Bank overdraft
- Loans (current portion)
- Accrued expenses
- Income received in advance
Non-current liabilities (Long-term - more than 12 months):
- Loans greater than 12 months
Key principles for account behaviour
Debit accounts (DAX): All accounts listed on the debit side begin with a debit balance. When these accounts increase, they are debited. When they decrease, they are credited.
Credit accounts (CIL): All accounts listed on the credit side begin with a credit balance. When these accounts increase, they are credited. When they decrease, they are debited.
Common Mistake to Avoid:
Many students confuse the terms "debit" and "credit" with "increase" and "decrease." Remember:
- For DAX accounts: Debit = Increase, Credit = Decrease
- For CIL accounts: Credit = Increase, Debit = Decrease
The meaning of debit and credit depends on the account type!
Posting to the General Ledger from journals
Transferring information from journals to the General Ledger is called posting. Each type of journal has specific rules for posting. Understanding these procedures is essential for maintaining accurate records.
Cash Receipts Journal (CRJ)
CRJ Posting Procedure:
When posting from the Cash Receipts Journal:
- The Bank account is debited with all amounts from the CRJ (except cost of sales)
- All other accounts (excluding cost of sales) are credited as contra accounts
- Cost of sales is the exception: it is debited because it's an expense account. The contra account for cost of sales is Trading stock, which is credited
Cash Payments Journal (CPJ)
CPJ Posting Procedure:
When posting from the Cash Payments Journal:
- The Bank account is credited with all amounts from the CPJ
- All other accounts are debited as contra accounts
Debtors Journal (DJ)
DJ Posting Procedure:
When posting from the Debtors Journal:
- Debtors control is debited with the sales amount
- Sales is credited
- Cost of sales is debited as recorded in the CRJ
- Trading stock is credited
Debtors Allowances Journal (DAJ)
The Debtors Allowances Journal records returns or allowances given to debtors. This requires opposite treatment to the Debtors Journal:
DAJ Posting Procedure:
When posting from the Debtors Allowances Journal:
- Debtors control is credited with the debtors allowances amount
- Debtors allowances is debited
- Cost of sales is credited
- Trading stock is debited
Important notes:
- Only stock physically returned by the debtor will show an amount in the cost of sales column
- Items where debtors received an allowance but kept the goods will not have an amount in the cost of sales column, as the stock was not returned
Creditors Journal (CJ)
CJ Posting Procedure:
When posting from the Creditors Journal:
- Creditors control is credited with amounts from all columns in the Creditors Journal
- All other accounts are debited as contra accounts
Creditors Allowances Journal (CAJ)
The Creditors Allowances Journal records returns or allowances received from creditors. This requires opposite treatment to the Creditors Journal:
CAJ Posting Procedure:
When posting from the Creditors Allowances Journal:
- Creditors control is debited with amounts from all columns in the Creditors Allowances Journal
- All other accounts are credited as contra accounts
Petty Cash Journal (PCJ)
PCJ Posting Procedure:
The Petty Cash Journal operates similarly to the Cash Payments Journal:
- The Petty cash account is credited with all amounts from the PCJ
- All other accounts are debited as contra accounts
General Journal (GJ)
GJ Posting Procedure:
When posting from the General Journal:
- Posting depends on the specific General Journal entry
- Whatever account was debited in the General Journal must be debited in the General Ledger
- Whatever account was credited in the General Journal must be credited in the General Ledger
The General Journal is used for adjustments, corrections, and non-routine transactions, so each entry must be carefully analyzed.
Critical Pattern to Remember:
Notice the pattern with allowances journals:
- Debtors Allowances Journal does the OPPOSITE of what the Debtors Journal does
- Creditors Allowances Journal does the OPPOSITE of what the Creditors Journal does
This makes sense because allowances journals record returns or reductions, essentially reversing part of the original transaction.
Exam tips
Essential Exam Tips:
- Always memorize the DAX and CIL acronyms - they are essential for determining debit and credit balances
- Practice identifying account types (balance sheet vs nominal) to improve speed in exams
- Remember that the folio column creates an audit trail - always check that the correct journal abbreviation is used
- When balancing accounts, always write totals in pencil first to allow for corrections
- Pay attention to contra accounts - they tell you which other account is affected by each transaction
- Cost of sales is usually the exception in journals - it often requires opposite treatment to other accounts
Key Points to Remember:
- The General Ledger is divided into debit (Dr) and credit (Cr) sides for organizing all business transactions
- DAX (Drawings, Assets, Expenses) accounts have debit balances, while CIL (Capital, Income, Liabilities) accounts have credit balances
- Accounts are classified as either balance sheet accounts (ongoing balances) or nominal accounts (temporary income and expense accounts)
- Each General Ledger entry must include the date, details (contra account), folio reference, and amount
- When posting from journals, most follow a pattern: one main account and multiple contra accounts that receive opposite treatment
- Cost of sales is frequently an exception to posting rules and requires special attention
- The contra account in the Details column shows you the other half of every double-entry transaction
- Allowances journals (DAJ and CAJ) always do the opposite of their corresponding journals (DJ and CJ)