CHAPTER TWO
GENERAL AND SUBSIDIARY
LEDGERS
INTRODUCTION
The unit describes the purpose and format of each
ledger and the process of recording entries in
ledgers.
LEDGER
Description of Ledgers
A ledger is the entire group of accounts maintained by
an accounting unit. The ledger summarizes transactions
by accounts. The ledgers 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: General Ledgers and Subsidiary
Ledger (MOFED and DSAS Project manual, December,
2002).
GENERAL LEDGER
A ledger card is maintained for every account
code recorded in the register. Every amount that
is entered as either a debit or credit on the
Register is also entered to the corresponding
debit or credit column of the appropriate ledger
card. The aggregate of all such ledger cards is the
general ledger.
CONT….
The general ledger is a set of self-balancing ledger
cards because at all times the total debits and the
total credits recorded in the general ledger are
equal. 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
The accountant maintains a general ledger for each
register. Where more than one BI shares the same
bank account, the accounting unit maintains one
Register and one general ledger for the bank
account. A system of control accounts in the
general ledger and supporting subsidiary ledgers is
used to maintain sufficient account balance detailed
to facilitate management reporting requirements.
CONT…
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 (MOFED and DSA Project
manual, December, 2002).
CONT..
A subsidiary ledger is not a set of self-balancing
accounts. Not all debits in a subsidiary ledger are
equal to all credits in the subsidiary ledger. A
subsidiary ledger's total debits and credits equal the
balance in the corresponding control account in the
general 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.
CONT..
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. Total of advances
to staff is a control account in the general ledger
because the reporting requirements require only
the total amount of the advances to staff (rather
than the amount owed by each staff member).
STRUCTURES AND ORGANIZATION OF LEDGERS
Structure of Ledgers
This section describes when an account in the
general ledger is treated as a control account. Two
criteria define whether an account code is a control
account with a related subsidiary ledger:
Monthly reporting requirements
Management and control of the account balance
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. The
control account contains information whose detail is shown
in the subsidiary ledger. 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 (MOFED)
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.
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
CONT…
a. Transfers: Transfers accounts typically are not
control accounts and have no related Subsidiary
Ledgers.
b. 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.
CONT..
c. Receivables, Payables, and Letters of Credit:
Receivables, payables, and letters of credit accounts
typically are control accounts with related
Subsidiary Ledgers. Accounts in the Subsidiary
Ledgers identify individual items under the control
account (MOFED and DSA Project, December, 2002).
CONT..
Organization: The general ledger is organized into seven broad
categories comprising:
Revenue, Assistance or Loan accounts in sequence of the
account codes
Expenditure accounts in sequence of the account codes
Transfer accounts in sequence of the account codes
Asset accounts in sequence of the account codes
Liability accounts in sequence of the account codes
Letters of Credit accounts in sequence of the account codes
Net Asset/Equity account
The subsidiary ledger is organized by the related control
account maintained in the General Ledger (MOFED and DSA
Project manual, December, 2002).
RECORDING ENTRIES IN LEDGERS
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.
LEDGER CARD
ME/HE/17
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT
LEDGER CARD
PUBLIC BODY _______________ CODE _______ PAGE _______
PROGRAM _________________ CODE _____
SUB AGENCY ________________ CODE _____
TYPE OF BUDGET _____________
SUB-PROGRAM _______________ CODE _____
PROJECT __________________ CODE _____
ACCOUNT CODE______________
SOURCE OF FINANCE _____________CODE _____
BANK ACCOUNT NO.______________
DESCRIPTION ______________
Reference from
Date Register Description Debit Credit Balance
Month Page Item Date Debit Credit
no
CONT…
The ledger card has two parts:
Top of the form contains information that identifies
the general ledger to which the card belongs, and
the specific account code and type of budget
recorded on the card.
The table contains information from the transaction
register for computing the balance for the account
code/type of budget.
CONTENTS OF MOFED LEDGER
According to MOFED ledger card in the general ledger contains the
following features:
a. Date is the date that the entry is made in the ledger card, not the
date of the transaction.
b. Reference from registrar contains sufficient information to
uniquely identify the Register source of the entry.
c. Description is option. If additional information about the transaction
is desired, it should be written here.
d. Debit and Credit contains the amount from the Register for the
transaction. Every amount that is entered as a debit (or credit) on
the register is entered in a corresponding debit (or credit) column
of a ledger card in the general ledger.
e. Balance is the net cumulative balance of the account
Recording Transactions into the Foreign Currency Cash
Account Ledger Card
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHOPIA
MINISTRY OF FINANCE & ECOMOCIS DEVELOPMENT
Foreign Currency Cash Account Ledger Card Page ____
Public Body ________ Code_______
Bank Account No._________ Code ______ Account Code 4102
Donor/lender _____________ Code ______
Reference from
Date Register Desc. Cash at Bank Balance Cash at Bank Balance
(birr) ((FC)
Amt Page Item Date
no Dr. Cr. Dr. Cr. Debit Cr. Debit Cr.
CONT..
The foreign currency cash account ledger card is
shown in the above figure. 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:
once in Birr and once in foreign currency.
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..
The net debit and credit cumulative balances on all
ledger cards in a subsidiary ledger should be totaled
on a monthly basis and compared to the balance on
the control account's ledger card in the general
ledger. The purpose is to verify the accuracy of the
total net balance in the subsidiary ledger with net
balance in the control account in the general ledger
and to produce accurate monthly reports for
expenditure (MOFED and DSA Project, December
2002).
SUMMARY
Transactions are recorded in the register, but reports are
produced from the ledgers.
Two types of ledgers are maintained in the FGE accounting
system: General ledgers and subsidiary ledgers. Because
the general ledger serves as a basis to prove that the net
cumulative debit and credit balances of all accounts are
equal, the general ledger simplifies and improves the
report generation process. The general ledger is organized
into seven broad categories comprising in FGE accounting
systems.
A: Subsidiary Ledgers for Expenditure Control Accounts
Source of Funding Sub Ledger Items
Treasury Yes By BI for each item of
Expenditure/type of budget
Loans Yes By BI for each item of expenditure
Assistance Yes By BI for each item of expenditure/type of budget
B: Subsidiary Ledgers for Revenue, Assistance and Loan Accounts
Source of Funding Sub Ledger Items
Treasury No Not applicable
Loans No Not applicable
Assistance No Not applicable
C: Subsidiary Ledgers for Other Accounts
Codes Sub Ledger Items
Cash at Bank No Not applicable
Cash in Safe Yes By safe, if accounting unit controls more than one safe
Transfers No Not applicable
Receivables Yes By individual item
Payables Yes By individual item
Letters of Credit Yes By individual item
Net Assets/Equity No Not applicable
CHAPTER THREE
ANALYSIS OF TRANSACTION
