Company General Ledger Accounts (Grade 12 NSC Matric Accounting): Revision Notes
Company General Ledger Accounts
Introduction to company ledger accounts
Companies use specialised ledger accounts that differ from those used by sole traders and partnerships. These accounts help track important company activities like share issues, tax obligations, and dividend distributions to shareholders.
Understanding company ledger accounts is essential for accurate financial record-keeping and compliance with company law requirements. These accounts provide transparency for shareholders and regulatory authorities.
The six main company ledger accounts
There are six commonly examined company ledger accounts that you need to understand:
- Ordinary share capital - Records the value of shares issued by the company
- SARS (Income tax) - Tracks provisional tax payments made to SARS
- Shareholders for dividends - Records amounts owed to shareholders for dividends
- Income tax - Shows the total tax liability for the year
- Dividends on ordinary shares - Records dividend payments to shareholders
- Appropriation account - Distributes the company's profit for the year
These six accounts form the foundation of company financial reporting and are frequently tested in examinations. Master their purpose and classification to ensure accurate bookkeeping.
Understanding account classifications
Company accounts are classified into different sections depending on their nature:
Balance sheet section accounts
These accounts appear on the balance sheet and include:
- Ordinary Share Capital - Shows the company's share capital
- SARS (Income Tax) - Records provisional tax payments as an asset when overpaid or liability when underpaid
- Shareholders for Dividends - Shows amounts still owed to shareholders as a current liability
Balance sheet accounts show the company's financial position at a specific point in time. They represent what the company owns (assets), owes (liabilities), and the shareholders' equity.
Nominal accounts section
These accounts are used to calculate profit and include:
- Income Tax - The total tax expense for the year
- Dividends on Ordinary Shares - Dividend expenses paid during the year
Nominal accounts are temporary accounts that are closed at the end of each financial period. They help determine the company's profitability for the year.
Key concepts and transactions
Share capital transactions
When a company issues new shares to raise capital, the transaction is recorded in the Ordinary Share Capital account. The average share price can be calculated by dividing the total share capital by the number of shares issued.
Worked Example: Calculating Average Share Price
Given information:
- Share capital: R1,375,000
- Number of shares issued: 550,000
Calculation: Average price =
Average price =
Tax-related transactions
Companies make provisional tax payments to SARS during the year:
- First payment is made halfway through the financial year (6 months)
- Second payment is made at the end of the financial year
- The final tax assessment determines if additional tax is owed or if a refund is due
Timing is crucial with provisional tax payments. Missing deadlines can result in penalties and interest charges. Always ensure payments are made on the prescribed dates.
Dividend transactions
Companies pay dividends to shareholders in two forms:
- Interim dividends - Paid during the financial year
- Final dividends - Declared at year-end but paid in the following year
Final dividends that are declared but not yet paid create a liability called "Shareholders for Dividends."
The distinction between interim and final dividends is important for timing and liability recognition. Final dividends create a year-end liability that must be properly recorded.
Share buyback transactions
When companies buy back their own shares from shareholders, this reduces the total number of shares in circulation and affects the average share price calculation.
Appropriation account preparation
The Appropriation Account shows how the company's profit is distributed. There are three different methods for preparing this account, depending on how retained income is treated:
Method Overview
All methods include:
- Income tax expense
- Dividends on ordinary shares
- Transfer to/from retained income
The main difference lies in how the retained income account is structured and when transfers occur.
Recording transactions correctly
When recording company transactions, follow these essential steps:
- Identify the transaction type - Is it related to shares, tax, or dividends?
- Determine the correct account - Use the appropriate company ledger account
- Apply correct classification - Balance sheet section or nominal accounts section
- Record on correct side - Follow debit and credit rules for each account type
- Calculate balances - Ensure mathematical accuracy
Accuracy in transaction recording is essential. Double-check your work and ensure you're using the correct accounts for each transaction type. Misclassification can lead to incorrect financial statements.
Practical tips for exams
- Always read transaction descriptions carefully to identify which accounts are affected
- Pay attention to timing - some transactions create liabilities for future payment
- Calculate average share prices when new shares are issued
- Remember that final dividends are declared but not paid at year-end
- Check that provisional tax payments align with the final tax assessment
Key Points to Remember:
- Six main company accounts: Ordinary share capital, SARS, Shareholders for dividends, Income tax, Dividends on ordinary shares, and Appropriation account
- Provisional tax is paid twice during the year - halfway through and at year-end
- Final dividends are declared at year-end but create a liability as they haven't been paid yet
- Balance sheet accounts show financial position, while nominal accounts help calculate profit
- Share buybacks reduce the number of shares in circulation and affect average share price calculations