The nominal ledger is the central core of the accounts. It records information
from the sales and purchase ledgers since the transaction entry programs in
Gx Sales and Gx Purchase automatically update the correct nominal
accounts. In addition, it is necessary to record and update transactions that
do not come from the sales or purchase ledgers. For example, where there
are no customer or supplier records to update, you can record the information
directly into the nominal ledger using journals. Petty cash is an example of
this. You would not create a Purchase Ledger supplier account for the local
shop where you buy milk, stamps etc since you do not wait to be invoiced for
such items. Instead you can post the amounts spent straight into the relevant
nominal accounts, e.g. petty cash, sundries, postage etc using the nominal Cash Book Journals program. Employee wages is another example. These
can be posted directly to the nominal ledger using Nominal Journal Postings
since they do not relate to sales or purchases.
The nominal ledger is split into two parts: the Balance Sheet and the Profit &
Loss account.
Balance Sheet
This is always ongoing. It contains details of your assets (e.g. debtors, bank
account, cash in hand, stock) and liabilities (e.g. creditors, bank overdrafts,
loans, VAT). The balance sheet will also include depreciating assets, e.g.
vehicles, equipment and machinery.
Profit & Loss
This includes income and expenditure. It is cleared at the end of the financial
year. The profit or loss made is calculated at the financial year-end and
added to the balance sheet. The P&L begins fresh for the new financial year.
The P&L has three main sections Sales/Income, Purchases/Cost of Sales and
Overheads/Expenses.
Power-Gx operates double-entry booking-keeping. All postings in the nominal
ledger need dual entries, i.e. a debit and a credit posting so that the batch
control total is always zero. This ensure that money does not ‘disappear’ from
the system, it must increase one account and decrease another leaving an
audit trail. Credit entries usually represent the sources of financing, and the
debit entries usually represent the uses of that financing. Examples include:
Buying an asset:
1. The amount of fixed assets in the business increases (debit).
2. The amount of cash in the bank is reduced (credit).
Entering cheques received from your customer:
1. The bank balance is increased (debit).
2. The debtors account is decreased (credit).
Wages paid directly into an employees account:
1. The bank balance is reduced (credit).
2. The wages and salaries overhead nominal account is increased (debit).
Accounting for stock used internally:
1. The stock value is reduced (credit).
2. The office/admin overheads are increased (debit).
Double-entry journals enforce built-in checks and balances that help you keep
accurate records. Refer to Debit or Credit Journal Entries? for guidance
on
which entry should be the debit (+ve) and which should be the credit (-ve).
On Power-Gx, nominal account codes are made up of ten digits split into three
parts; Branch, Section and Cost code. These are arranged as follows:
BBB/SSS/CCCC
Branch Codes
The branch determines whether this nominal code is a Balance Sheet item or
Profit & Loss account item. A company can have up to 999 branches, with
code 000 being reserved for the balance sheet. It is most likely that they only
use 000 and one P&L branch code, 001. However, you can replicate the P&L
by using multiple branches.
Section Codes
Section codes will be allocated to Current Assets, Fixed Assets, Liabilities,
Sales, Purchases, Overheads and so on. Examples of the section codes you
could use are:
E.g. Fixed Assets 010
Current Assets 020
Liabilities 030
Sales 100
Purchases 200
Overheads 500
The above figures are just examples of the section codes you could use.
Your company will have its own codes in place. However, it is a good idea to
use gaps in the numbering as suggested above so that any new section
codes required can be slotted into the required places so that the trial balance
prints in a sensible order.
Cost Codes
Cost codes are given to the various items in the accounts.
E.g. property 0100
plant and machinery0110
motor vehicles 0120
debtors 0200
bank 0210
creditors 0300
sales of stationery 1000
sales of furniture 1010
rent 5000
utility bills 5010
Again these cost codes are simply suggestions. You may wish to follow a
sequence of allocating cost codes a number that ties in with their section
code.
E.g. section code 010 uses only cost codes 0100 – 0199
section code 020 uses cost codes 0200 – 0299
section code 100 uses cost codes 1000 – 1999
section code 200 uses cost codes 2000 - 2999
section code 500 uses cost codes 5000 – 5999 and so on.
Such a system makes it easy to determine the next available nominal code for
a new item. Click here for an example of a well planned nominal account
code structure.
The combination of the branch code, section code and cost code creates the
unique nominal account code. For example using the codes suggested
above, the P&L sales code for stationery would be 001/100/1000 where 001
represents the P&L, 100 is the sales section code and 1000 represents the
sales of stationery cost code. Nominal account code 000/020/0200 would
represent Balance Sheet/Current Assets/Debtors and nominal account code
001/500/5000 would represent P&L/Overheads/Rent.
Nominal account codes are either debits or credits. It is important to set the
nominal codes up with the correct debit or credit indicator. Assets, sales
discount given, cost of sales, overheads and other purchases are debits.
Depreciation of assets, liabilities, sales, other income and purchase discount
taken are credits.