Nominal ledger

From CEOpedia | Management online

Nominal Ledger is a financial book or electronic file. It contains all of the transactions data, including payments, charges and assets, across the company. The period and information included in the Ledger is for lifetime of the company[1].

Usability

All the records are used for preparing financial statements for example, income statement and balance-sheet. Those are compiled by the year-end or period-end.

Prior to computerisation era accounting records written by hand in physical account books. Across the business the Nominal Ledgers were treated as a Bible of each company as it included all the financial statements and transactions records.

Nowadays, it is very rare for the company to keep all the data in a form of physical book, they rather have it all in one computer. But some businesses keep it as a journal and put all the transactions as debt and credit entry and balance the accounts[2].

Digitalisation

Due to technology development and increase in technology replacing traditional method of contact, recording data and also in accounting, accountants don't need to write in a journal each transactions detail and spend hours with calculator on checking each entry to make sure that everything has been put correctly and the balances are right. Useful tools are[3]:

  • Excel - one of the best-known programs easing basic accountants’ calculations. It enabled creating e-ledger as per possibility to figure balances and totals more automatically than it used to be. Although Excel is useful and speeds up the processes, all the data, such as sum, amount etc. must be put in by hand. This leads to high risk of making mistake. It is worth remembering that Excel is not a tool dedicated for accountants but it is helpful with basic calculations.
  • Designated programs - there are also programs dedicated for accountants or accounting software. As per its usability paper journal, which is Nominal Ledger is considered dated. Sustaining running totals and letting bank to resign and use auto-matching, the designed programs and software conduce to minimalizing the possibility of error.

Self-assessment

All the mentioned improvements ease filling up the self-assessment form. Accountants don't have to record all the transactions manually, but the nominal code for every and each must be amended so those can be reported to the Accounting Software Nominal Ledger, if the system is available.

Some of the systems consist of a Chart of Accounts, also known as COA and those include codes required for transactions recorded in financial statements. Also balance sheet and income statements codes.

As per this kind of programs both, sale and purchase actions, have to place the entry against the code for Nominal Ledger within the software[4].

Examples of Nominal ledger

  • Accounts Payable Ledger: This ledger contains all financial transactions related to accounts payable, such as invoices and payments. It also includes the details of the accounts being paid and the dates when the payments were made.
  • Accounts Receivable Ledger: This ledger contains all financial transactions related to accounts receivable, such as invoices and payments. It also includes the details of the accounts being paid and the dates when the payments were received.
  • General Ledger: This is the main ledger that contains all financial transactions across the company. It includes the details of all accounts, such as sales, expenses, assets, and liabilities.
  • Cash Ledger: This ledger contains all financial transactions related to cash, such as deposits and withdrawals. It also includes the details of the accounts involved in the transactions, as well as the dates when the transactions occurred.

Advantages of Nominal ledger

  • A Nominal Ledger is a comprehensive record of all financial transactions, which makes it easier to track and analyze the financial performance of the business.
  • It helps in creating financial reports and statements, as well as helping in creating budgets and forecasts.
  • It can be used to identify any potential errors or discrepancies in the company’s financial records.
  • It enables managers to easily analyze trends and compare actual performance to budgeted figures.
  • It helps in accurately tracking profit and loss and money flow.
  • It can help keep accounts more organized and easier to access.
  • It provides a detailed audit trail which can help to detect and prevent fraud.

Limitations of Nominal ledger

Nominal Ledger is a financial book or electronic file that contains all of the transactions data across the company. However, there are several limitations of using a nominal ledger:

  • It can be difficult to track changes in the ledger, as it records all transactions over the company’s lifetime.
  • It is not possible to view transactions at any specific period of time, as it shows only the overall transaction data.
  • It is not easy to identify discrepancies or fraudulent activities with nominal ledger as it only shows the overall transaction data.
  • It cannot be used to identify or analyze trends in the financial statements.
  • It does not provide detailed information about the transactions and therefore may not be suitable for auditing purposes.

Other approaches related to Nominal ledger

Nominal Ledger is a financial book or electronic file which contains all of the transactions data, including payments, charges and assets, across the company throughout its lifetime. Other approaches related to the Nominal Ledger are:

  • Accrual accounting - tracking financial events as they occur, regardless of when money is exchanged.
  • Double-entry bookkeeping - tracking financial events by making two entries for every transaction.
  • Activity-based costing - assigning costs to specific activities and products or services.
  • Budgeting - setting and tracking financial goals.
  • Financial forecasting - predicting future financial performance of a business.

In summary, Nominal Ledger is a key financial tool for businesses to track their transactions and performance. It is closely related to other approaches such as accrual accounting, double-entry bookkeeping, activity-based costing, budgeting, and financial forecasting. All of these approaches are important for businesses to understand and manage their finances.

Footnotes

  1. ↑ Chhabra K., Pattanayak J., 2014, p. 37-55.
  2. ↑ Yamey B., 2010, p. 163-176.
  3. ↑ Leunonem H., 2015, p. 236-261.
  4. ↑ Jeacle I., 2011, p. 288-303.


Nominal ledger — recommended articles
Closing entries — Subsidiary account — Open item — Opening entries — T account — Book of original entry — Reversing entry — Sales ledger — Month end closing

References

Author: Anna Zalewska

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