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Nominal Ledgers

Bookkeeping is a necessary part of running your business. Not only do you have to return your accounting records at the end of your financial year, but keeping your books up to date helps you stay on top of your business’ performance.

You may pay a professional bookkeeper or accountant to look after your financial records on a day to day basis. On the other hand you could do it yourself.

What if you don’t have any experience with accounting? Some of the terminology may confuse you. Something we come across quite often here that can confuse small business owners doing their accounts is the nominal ledger.

In this post we’re going to tackle the nominal ledger. What exactly is it? And what does it do? The answer, it turns out, is not that complicated.

A nominal ledger contains all of the transactions entered into a company’s financial records. Simply put, every single transaction that you record will end up in the nominal ledger. But how?

If you are using accounting software, the software will automatically take care of this for you in the background.

Another name for the nominal ledger is the general ledger. It is important to realise that these are one and the same so that you don’t get confused by the different terms.

In order to categorise transactions, a number of daybooks are used on a day to day basis such as the sales book, cash book or purchases book depending on the type of transaction being recorded. Prior to the occurrence of accounting software, the transactions in these days books would be manually posted to a physical ledger, the nominal ledger. Luckily, using software now allows you to enter the transaction once into the relevant daybook and it will automatically update the necessary entries for the nominal ledger in the background.

Your nominal ledger is segmented by the individual accounts that you keep, such as your sales account or individual supplier accounts. When you use your accounts software to produce your Profit & Loss or Balance Sheet reports it is the balances of these accounts that are used within those reports. Once again, these accounts are automatically updated in the background of most accounting software packages by the entries you create, making it easier for you to manage accounts.

So if you’re using modern accounting software you don’t have to worry about it on a day to day basis. It will be working away in the background. Generally, if it is required to be used to make adjustments to your numbers or correct minor issues, your accountant will use the nominal ledger.

If you use Big Red Cloud accounting software you can choose to enter transactions directly into the nominal if you feel like you have the accounting experience necessary to do so. Why not take a free trial and see for yourself?

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