Nominal ledger - What is the nominal ledger?
The nominal ledger is a journal or an electronic file that contains all of the transactions relating to a company’s accounts
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The nominal ledger (also commonly referred to as the general ledger) to is the main area where all of your accounting transactions are held.
The information contained in the nominal ledger is used to compile the financial reports (such as the profit & loss report and the balance sheet) at the end of each accounting period or when the reports are needed.
The traditional nominal ledger
Before computerisation, all accounting entries were written up by hand in physical ledgers (journals). The nominal ledger was sometimes referred to as the ‘Company Bible’ and contained the complete set of accounting records for each company.
Some companies might still keep an actual journal today, making sure that for every debit entry there’s a credit entry and thus "balancing the books".
The digital age and the nominal ledger
Thankfully, with recent leaps in accounting technology, it’s no longer necessary to pencil amounts into a book and spend too much time with a calculator to make sure the balances are right.
Programmes such as Excel made it possible to create a paperless ledger, and eliminated the need for calculating running totals by hand. However, because Excel is not built specifically for accounting and relies completely on the accuracy of the numbers entered manually, there is a high margin for error.
Enter specialised accounting software. Current accounting systems essentially make the traditional nominal ledger obsolete. By maintaining running totals, allowing for bank reconciliation and auto-matching, accounting software minimises the risk of error.
Completing the self-assessment form
Today, with accounting systems readily available, you don’t need to write out your transactions by hand - but you still need to select a nominal code for them to be recorded in the accounting systems nominal ledger if your accounting software offers one.
Some accounting systems comprise of a Chart of Accounts (COA) and within this are nominal ledger codes. These will include balance sheet and profit and loss codes.
With these types of systems, when you process a transaction, whether that transaction is a sale or a purchase, you will need to place the entry against a nominal ledger code within your nominal ledger.
Nominal ledger in Debitoor
Because Debitoor is as automated as possible, the nominal ledger is already built-in. This means that there is no need to create and add nominal account codes.
When you enter an expense, for example, you can choose a category. This will then be automatically updated when you wish to generate a financial report. The balances are updated automatically and reflected in the totals for the selected period.