Home » Accounting Explanation » Preparing Ledger Accounts


Our second ledger Account

We would now create a Capital account because it's the second element in our General journal. The procedure of preparing a capital account is same as of Cash account




DEBIT
Capital account



CREDIT
DATE
DESCRIPTION
AMOUNT
DATE
DESCRIPTION
AMOUNT




Balance c/d

$200,000
Dec. 3 Cash

$200,000

TOTAL $200,000
TOTAL $200,000



Third Account

Nominal accounts
These are the accounts of revenues and expenses. These accounts are closed after the end of  an accounting period (e.g one year). Examples of these accounts include: accounts of Salaries, rent, depreciation, discount received, discount allowed, interest earned, commission received, sales return etc..


Important to note: Since we are going to create a Purchases expenses account (a nominal account), we won't use the words "Balance c/d " and "Balance b/d" rather that we would use Income statement or Profit and loss account. Because these accounts are closed after the end of an accounting period and their balances are transferred to income statement contrary to Real accounts where balances are transferred to Balance sheet. Don't worry about Income statement and Balance sheet, we will cover them later on





DEBIT
Purchases account



CREDIT
DATE
DESCRIPTION
AMOUNT
DATE
DESCRIPTION
AMOUNT
Dec. 4


Creditor (Mr. Z and Co.)
$2000



Income statement (BF)

$2000

TOTAL $2000
TOTAL $2000

BF=Balancing figure
The only difference in this account is the use of word "Income statement" in the place Balance c/d. However, the procedure of posting transactions in this account is same.



Fourth account





DEBIT
Creditor account



CREDIT
DATE
DESCRIPTION
AMOUNT
DATE
DESCRIPTION
AMOUNT
Dec. 5

Cash

Balance c/d

$2000

Nil

Dec. 4 Purchases


$2000

TOTAL $2000
TOTAL $2000



Fifth Account





DEBIT
Tel. Expenses account



CREDIT
DATE
DESCRIPTION
AMOUNT
DATE
DESCRIPTION
AMOUNT
Dec. 7

Cash
$500

Dec. 7

Income statement


$500

TOTAL $500
TOTAL $500




Sixth and the last Account





DEBIT
Commission income account



CREDIT
DATE
DESCRIPTION
AMOUNT
DATE
DESCRIPTION
AMOUNT

Dec. 20


Income statement

$1000
Dec. 20

Cash

$1000

TOTAL $1000
TOTAL $1000