Chapter Two

General and Subsidiary Ledgers

 Chapter objectives
At the end this chapter, you will be able to:
• Define general and subsidiary ledger
• Analyze the relationship that exists between controlling
and subsidiary ledger
• Explain how ledgers in FGE accounting system are
structured into general & subsidiary ledger
• Identify the ledgers in FGE accounting system easily
based on its organization
• List the activities in finance section at the end of the
month and the budget year.
 2.1. Description of Ledgers
 A ledger is the entire group of accounts maintained
by an accounting unit.
 It summarize the transaction information from
registers in the form of accounts that facilitate
reporting of financial results.
 Transactions are recorded in the register, but reports
are produced from the ledgers.
 Two types of ledgers are maintained in the FGE
accounting system:
I. General Ledgers and
II. Subsidiary Ledger
 General Ledgers
 It is the aggregate of all ledger cards.
 It is a set of self-balancing ledger cards.
 The general ledger is maintained to classify
information reported in the Register by
respective account codes.
 All transaction amounts recorded in the
Register are entered on ledger cards in the
general ledger.
 The balances for all individual accounts are
maintained in the general ledger.
 Subsidiary Ledger
 A control account is an account in the general
ledger that maintains the total balance of all
related accounts in a subsidiary ledger.
 A subsidiary ledger is a ledger that is separate
from the general ledger and contains transaction
details of each control account in the general
ledger.
 Any account in the general ledger that requires
more detail than simply the total account
balance becomes a control account with a
Subsidiary Ledger.
 Cont---
 A subsidiary ledger is not a set of self-balancing accounts.
 A subsidiary ledger's total debits and credits equal the balance
in the corresponding control account in the general ledger.
 For example, total of advances to staff is a control account in
the general ledger, but the amount owed by each staff member
is a subsidiary ledger account in the subsidiary ledger.
 The purpose of control accounts and subsidiary ledger
accounts is:
 to facilitate the report generation process,
 minimize the size of the general ledger and
 maintain sufficiently detailed records regarding account
balances to assist proper financial management.
 Structures and Organization of Ledgers
• Structure is about the relationship that exists
between general and subsidiary ledger and
• organization is about the systematic grouping in
general ledger.
 Structure of Ledgers 
 There are two criteria define whether an
account code is a control account with a related
subsidiary ledger:
I. Monthly reporting requirements
II. Management and control of the account balance 
 Cont’d
Recurrent and Capital Expenditure 
 An accounting unit is required to report recurrent and
capital expenditures at the level of each BI managed by it.
 Expenditure control accounts are maintained in the
general ledger for each item of expenditure and type of
budget.
 In order to also track and report actual expenditure at the
level of each BI managed by the accounting unit, a
subsidiary ledger is maintained for each expenditure
control account by BI.
 Accounts in the subsidiary ledger provide information on
total expenditures by type of budget and item of
expenditure for each BI managed by the accounting unit.
 Revenue
 An accounting unit is required to report revenue at the
level of the accounting unit and not the level of each BI
managed by it.
 In order to record and report actual revenue at the level
of the accounting unit, an account should be maintained
in the general ledger for each item of revenue by account
code.
 The general ledger provides information on total revenues
by item of revenue for the accounting unit as a whole.
 Since there is no reporting requirement at the level of
each BI, a subsidiary ledger is not maintained for items of
revenue.
 Other Accounts

Other categories of accounts maintained in the general ledger

include:
Transfers
Cash and Cash Equivalents
Receivables
Payables
Letters of Credit
Net Assets/Equity
An accounting unit is required to report on accounts in
these categories at the level of the accounting unit only
and not at the level of each BI managed by it.
However, some of these account categories contain
control accounts with Subsidiary Ledgers.
 CONT---

 Transfers: Transfers accounts typically are not control

accounts and have no related Subsidiary Ledgers.
 Cash and Cash Equivalents: Cash and Cash Equivalents
accounts typically are not control accounts and have
no related Subsidiary Ledgers.
 If the accounting unit controls more than one safe, a
Subsidiary Ledger is needed for each safe under the
general ledger control account for Cash in Safe.
 Receivables, Payables, and Letters of Credit: those
accounts typically are control accounts with related
Subsidiary Ledgers.
 Accounts in the Subsidiary Ledgers identify individual
items under the control account.
In summary structure of account is as follow
 2.2. Organization

 Organization: The general ledger is organized into

seven broad categories comprising:
1. Revenue, Assistance or Loan accounts in sequence of the
account codes
2. Expenditure accounts in sequence of the account codes
3. Transfer accounts in sequence of the account codes
4. Asset accounts in sequence of the account codes
5. Liability accounts in sequence of the account codes
6. Letters of Credit accounts in sequence of the account codes
7. Net Asset/Equity account
 The subsidiary ledger is organized by the related control
account maintained in the General Ledger.
 2.3. Recording Entries in Ledgers
Recording Transactions into the Ledger Card of the
General Ledger
 Each transaction recorded in a register is also
recorded in the related general ledger.
 Each transaction is recorded in two separate ledger
cards because two accounts are affected by each
transaction.
 Each account is recorded on its appropriate ledger
card in the general ledger immediately after it is
recorded in the register.
 The only source document to the general Ledger is
the register.
 Recording Transactions into the Foreign Currency Cash Account
Ledger Card

 The cash account ledger card for Account Code

4102 "cash at bank in foreign currency" requires
a special format.
 This account code, and only this account code,
maintains a balance in Birr and in foreign
currency denomination.
 The same information is recorded in the foreign
currency transaction Register.
 Cont---
 The foreign currency cash account ledger card is
identical to any other ledger card, except that
the amount of each transaction recorded from
the foreign currency transaction register is
recorded on the card twice:
I. once in Birr and
II. once in foreign currency.
 In addition, the net cumulative balance of the
account is kept in both currencies.
 Cont---
Recording Transactions into the Ledger Card of the Subsidiary Ledger
 A ledger card in the subsidiary ledger is maintained
only for control accounts in the general ledger.
 Transactions are recorded on the appropriate
ledger cards in the subsidiary ledger from the
register immediately after they are recorded in the
ledger cards in the general ledger.
 The only source document for the subsidiary
ledger is the register.
 Cont---

Month end activities related to General and subsidiary

ledgers
 The general ledger account balances must be
determined at the end of each month.
 The total cumulative balance of all debit and
credits on all ledger cards in the general ledger
must be in balance.
 Where the net cumulative debits and credits
recorded on all ledger cards in the General
ledger are imbalance, an error exists.
 Cont---
 The following types of errors should be verified to balance
the general ledger
1. An incorrect amount is transcribed into the Ledger Card from
the Register.
2. An amount is incorrectly posted into the credit column of a
ledger card in the general ledger instead of into the debit
column, and vice versa.
3. Only one side (either debit or credit) of a transaction is posted
into the general ledger and the other portion (either debit or
credit) of he transaction is not posted into the general ledger.
4. An arithmetic error has occurred in the computation of the net
debit or credit balance of a ledger card in the general ledger.
5. Permanent account balances are not carried forward correctly
from the previous year.
 Cont---
The following types of errors should be verified to balance the
subsidiary and general ledgers:
• An incorrect amount is transcribed into the ledger from the
register.
• An amount incorrectly posted into the credit column of a
Ledger Card in the subsidiary ledger instead of into the debit
column, and vice versa.
• An arithmetical error has occurred in the computation of the
net debit or credit balance of a ledger card in the subsidiary
ledger.
• Permanent accounts balances are not carried forward
correctly form the previous year.
 Year end activities related to General and subsidiary ledgers
 In addition to the monthly routines, at the end of each
year, a transfer of the debit or credit balances to the
Net Assets/Equity account is required to close the
temporary accounts in the general ledger.
 The closing entry is the last entry made at the end of
the fiscal year after all other transactions are captured.
 The closing entry ensures that temporary accounts start
each fiscal year with a zero balance.
 The general ledger begins each new fiscal year with
carry forward balances in the permanent accounts from
the previous year
 Cont---
 Any subsidiary ledger corresponding to a temporary
account in the general ledger also is considered closed.
 A new subsidiary ledger is started each year for each
temporary control account.
 All accounts in the new subsidiary ledger begin the year
with a zero balance.
 Accounts in other account categories are permanent
accounts and are not closed each year.
 Any subsidiary ledgers corresponding to permanent
account in the general ledger also carry forward to the
next year.
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