Chapter 3: Post transaction to the ledger

Post-transaction ledger posting is a fundamental step in the accounting cycle that ensures financial data from source documents and journals is systematically recorded for accurate financial reporting. In Kenyan organizations such as building construction companies, bakeries, and tea factories, maintaining well-structured ledgers supports transparency, accountability, and compliance with regulatory requirements. This chapter explores the classification of ledgers and the identification of ledger accounts, enabling students to understand how financial information is organized and tracked across various sectors.

3.1 Classification of ledgers

A ledger is the book that holds the accounts of a business, each account on its own page or in its own record. Day books and the cash book record transactions in date order. The ledger sorts the same transactions by account, so the business can see at any time what it owns, what it owes, what it has earned and what it has spent.

A business that sells and buys on credit may deal with hundreds of customers and suppliers. Keeping all those accounts beside the accounts for rent, wages and equipment would make one very large book that only one person could work on and in which errors would be hard to find. Ledgers are therefore classified by the kind of account they hold. The general ledger holds the accounts that feed the final statements. The sales ledger and the purchases ledger are subsidiary ledgers that hold the detailed personal accounts of customers and suppliers.

Why ledgers are divided

• Shared work: One clerk can keep the sales ledger while another keeps the purchases ledger and a third keeps the general ledger, so posting is done faster.
• Better control: The total of the balances in a subsidiary ledger is agreed with a control account in the general ledger. How that agreement is worked out is taught under Control accounts.
• Easier error tracing: A mistake in a customer's account is searched for in the sales ledger alone, not among every account of the business.
• A shorter trial balance: The general ledger carries one control account for each subsidiary ledger, so the trial balance does not list hundreds of customers and suppliers.
• Clear responsibility: Each ledger has a named keeper, so a question about an account goes to a known person.

Other subsidiary records

Some businesses keep further subsidiary records beside the sales and purchases ledgers. An inventory (stores) ledger shows the quantity and value of each stock item, for example the bags of cement and boxes of nails held by a hardware shop. A non-current assets register lists each asset with its cost, date of purchase and depreciation. The cash book is both a book of original entry and the ledger account for cash and bank.

Good practice in keeping ledgers

• Timely posting: Post transactions soon after they are entered in the day books and cash book, so that balances are current and a backlog does not build up.
• Separate duties: The person who records invoices is not the person who handles receipts or who posts the control accounts, which reduces the chance of fraud.
• Regular agreement: Compare ledger balances with supplier statements, customer statements and the control accounts at least once a month.
• Accounting software: Where software is used, one posting updates the personal account and the control account together, which removes the risk of posting to one and forgetting the other.
• Audit trail: Each ledger entry names its source document, so an auditor can trace it back to the invoice, receipt or voucher.

3.1.1 General ledger

The general ledger, also called the nominal ledger, is the main ledger of the business. It holds every account needed to prepare the trial balance and the final statements. Its accounts fall into five groups: assets, liabilities, capital, income and expenses. Assets and expenses normally carry debit balances. Liabilities, capital and income normally carry credit balances.

Accounts held in the general ledger

• Assets: Cash, bank, inventory, equipment, motor vehicles and the sales ledger control account, which stands for the money owed by all customers together.
• Liabilities: Loans and the purchases ledger control account, which stands for the money owed to all suppliers together.
• Capital: The owner's capital account, which normally has a credit balance, and the drawings account, which has a debit balance because it records what the owner takes out of the business.
• Income: Sales and discount received.
• Expenses: Purchases, rent, wages, transport, discount allowed and similar costs.

A general ledger account has a debit side on the left and a credit side on the right. Each transaction is entered on the debit side of one account and on the credit side of another, which is the double entry.

Example: credit sales and the general ledger

A hardware shop sells goods on credit to several customers during the day and the sales for the month total Ksh 60,000. The individual invoices are posted to the customers' accounts in the sales ledger. In the general ledger only the total is posted.

Debit   Sales ledger control account    60,000
Credit  Sales account                   60,000

The general ledger therefore shows the whole month's sales and the total owed by customers on two accounts, while the detail by customer is found in the sales ledger.

3.1.2 Sales ledger

The sales ledger, also called the receivables or debtors ledger, holds one personal account for each customer who buys on credit. Each account shows what the customer was invoiced, what has been returned, what has been paid and what is still owed. The balance on a customer account is normally a debit, because the customer owes the business.

Sources of entries in the sales ledger

• Sales day book: Each credit sale invoice is debited to the customer's account.
• Sales returns book: A credit note for goods returned is credited to the customer's account.
• Cash book: Cash or cheques received are credited to the account, together with any discount allowed on the same line.
• Journal: Entries that do not belong to any book, such as a bad debt written off or a correction, are posted from the journal.

Uses of the sales ledger

• Customer statements: The account gives the figures for the statement sent to the customer each month.
• Credit control: The balance of each account is compared with the customer's credit limit before more goods are supplied.
• Follow-up of overdue accounts: Accounts with old balances are listed and followed up.
• Total receivables: The total of the balances is the figure for receivables in the statement of financial position.

Worked example of a customer account

A building materials supplier has Customer Rono's account with a balance of Ksh 40,000 on 1 March. On 8 March it sells him goods worth Ksh 25,000. On 12 March he returns goods worth Ksh 3,000. On 20 March he pays Ksh 38,000 by cheque and is allowed a discount of Ksh 2,000 on the opening balance, which is 5% of 40,000.

                 CUSTOMER RONO ACCOUNT (sales ledger)
DEBIT                                   | CREDIT
Date    Details                     Ksh | Date    Details                     Ksh
---------------------------------------------------------------------------------
1 Mar   Balance b/d              40,000 | 12 Mar  Sales returns             3,000
8 Mar   Sales                    25,000 | 20 Mar  Bank                     38,000
                                        | 20 Mar  Discount allowed          2,000
                                        | 31 Mar  Balance c/d              22,000
---------------------------------------------------------------------------------
        Total                    65,000 |         Total                    65,000
1 Apr   Balance b/d              22,000 |

The balance c/d is found as taught under Balancing off ledger accounts. Here it can be checked in one line:

Check              = 25,000 - 3,000 returned           = 22,000

The closing balance is the March sale less the goods returned, because the opening balance was cleared by the payment and the discount. Rono still owes Ksh 22,000.

3.1.3 Purchases ledger

The purchases ledger, also called the payables or creditors ledger, holds one personal account for each supplier from whom the business buys on credit. Each account shows what the supplier invoiced, what has been returned, what has been paid and what is still owed. The balance on a supplier account is normally a credit, because the business owes the supplier.

Sources of entries in the purchases ledger

• Purchases day book: Each credit purchase invoice is credited to the supplier's account.
• Purchases returns book: A debit note for goods returned to the supplier is debited to the account.
• Cash book: Payments made are debited to the account, together with any discount received on the same line.
• Journal: Corrections and other adjustments that belong to no book are posted from the journal.

Uses of the purchases ledger

• Payment planning: The accounts show which invoices are due and by when, so cash is set aside for them.
• Checking supplier statements: A supplier's statement is compared with the account, and differences are traced before payment.
• Avoiding duplicate payments: An invoice already paid is marked, so it is not paid again.
• Total payables: The total of the balances is the figure for payables in the statement of financial position.

Before an invoice is posted to a supplier's account it is checked against the order and against the delivery note, so that the business records only goods it actually ordered and received.

Worked example of a supplier account

A cement and roofing wholesaler owes Supplier Sang Ksh 60,000 on 1 March. On 8 March it buys goods worth Ksh 35,000 on credit. On 12 March it returns goods worth Ksh 5,000. On 20 March it pays Ksh 57,000 by cheque and receives a discount of Ksh 3,000 on the opening balance, which is 5% of 60,000.

               SUPPLIER SANG ACCOUNT (purchases ledger)
DEBIT                                   | CREDIT
Date    Details                     Ksh | Date    Details                     Ksh
---------------------------------------------------------------------------------
12 Mar  Purchases returns         5,000 | 1 Mar   Balance b/d              60,000
20 Mar  Bank                     57,000 | 8 Mar   Purchases                35,000
20 Mar  Discount received         3,000 |
31 Mar  Balance c/d              30,000 |
---------------------------------------------------------------------------------
        Total                    95,000 |         Total                    95,000
                                        | 1 Apr   Balance b/d              30,000

The balance c/d is found as taught under Balancing off ledger accounts. Here it can be checked in one line:

Check              = 35,000 - 5,000 returned           = 30,000

The closing balance of Ksh 30,000 is the March purchase less the goods returned, and it is the amount still owed to Sang.

Chapter Summary

This chapter explored the classification of ledgers, detailing the roles of the general ledger, sales ledger, and purchases ledger in organizing financial data. It then examined how ledger accounts are identified to ensure accurate recording of transactions. The process of posting transactions to the appropriate ledgers was explained, emphasizing the importance of transferring information correctly from source documents. The chapter also covered balancing off ledger accounts, a critical step in verifying the accuracy of recorded transactions. Following this, the concept of the trial balance was introduced as a tool to check the arithmetic accuracy of ledger postings. Finally, the preparation of the trial balance was discussed, highlighting its role in summarizing ledger balances before financial statements are produced. Together, these topics provide a comprehensive understanding of how financial data flows through accounting ledgers to support accurate financial reporting.