Chapter Two

General and
Subsidiary Ledgers

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 Definition of terms:
 Accounting Unit: The unit that records and maintains
accounting transactions.
 Budgetary Institution: A sub-agency or project that is allocated
a budget.
 Control Account: An account in the General Ledger that
maintains the total balance of all related accounts in a
Subsidiary Ledger.
 General Ledger: The set of all ledger cards maintained in a
double-entry bookkeeping system.
 Subsidiary Ledger: A ledger separate from the general ledger
that contains a group of related accounts; the total of the
balances in the subsidiary ledger accounts equals or ties in with
the balance in the corresponding control account.
 Letter of Credit: A guarantee to pay suppliers with cash set
aside in a bank account restricted for that purpose.
 Register: A chronological listing of all transactions; the book of
original entry into the accounting system for all transactions
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 2.1 Description of Ledgers

 A ledger:
 is the entire group of accounts maintained by an
accounting unit.
 summarizes transactions by accounts.
 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.
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 General Ledger
 Used to classify accounting information by account
codes
 Forms the basis to prove that the net cumulative
debit and credit balances are equal.
 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.
 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.
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 Subsidiary Ledger
 An account that requires more detail than simply the
total account balance
 Every amount entered either as a debit or credit on
the General Ledger Card is also entered to the
corresponding debit or credit column in the
Subsidiary Ledger Cards.
 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.
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 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.
 Subsidiary ledger is not maintained for all accounts in
the general ledger. Subsidiary ledgers are only
maintained for accounts within the general ledger
that requires more detail than simply the total
account balance.
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 2.2 Structures and Organization of Ledgers

 Structure is about the relationship that exists
between general and subsidiary ledger.
 Organization is about the systematic grouping in
general ledger.
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 Structure of Ledgers
 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
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 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.
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 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.
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 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.
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 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:
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.
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 Based on two criteria that define whether an account code is a control

account with a related subsidiary ledger, structure of ledgers in FGE
accounting system is summarized as follows:

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
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 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
 Thesubsidiary ledger is organized by the related control
account maintained in the General Ledger.
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 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.
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Figure 2.1: 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
Register Balance
Date Month Page Item Date Description Debit Credit Debit Credit
no
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 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.
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 According to MOFED project, the table on the ledger

card in the general ledger contains the following
features:
 Date is the date that the entry is made in the ledger
card, not the date of the transaction.
 Reference from registrar contains sufficient
information to uniquely identify the Register source
of the entry.
 Description is option. If additional information
about the transaction is desired, it should be written
here.
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 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.
 Balance is the net cumulative balance of the account.
After every transaction is recorded in the debit or credit
column of the ledger card in the general ledger, the net
cumulative balance of the account is derived by
appropriately adding or subtracting the amount of the
current transaction from the previous net cumulative
debit or credit balance.
 The purpose of the monthly net cumulative debit and
credit balances is to record the net balance in the
monthly reports and Trial Balance.
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 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 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.
 the net cumulative balance of the account is kept in both
currencies.
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Figure 2.2: Foreign Currency Cash Account Ledger Card

ME/HE/18
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 Cash at Bank Balance Cash at Bank Balance
Descripti (birr) ((FC)
on
month Page Item Date
no Debi Credit Debit Credit Debit Cred Debit Cr
t it ed
it
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 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.
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 The table in the subsidiary ledger contains similar

information to that of the general ledger such as date,
reference, description, debit and credit sides and
balances.
 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.
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 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.
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 The following types of errors should be verified to

balance the general ledger.
 An incorrect amount is transcribed into the Ledger Card
from the Register.
 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.
 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.
 An arithmetic error has occurred in the computation of the
net debit or credit balance of a ledger card in the general
ledger.
 Permanent account balances are not carried forward
correctly from the previous year.
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 At the end of each month, the net cumulative debit or

credit balance for each ledger card in the subsidiary
ledger should be calculated.
 The total net cumulative debit or credit balance for all
ledger cards in the subsidiary ledger must be equal to
net cumulative debit or credit balance on the
respective control account's ledger card in the general
ledger.
 Where total net cumulative debit or credit balance for
all ledger cards in the subsidiary ledger is not equal to
the net cumulative debit or credit balance on the
respective control account's ledger card in the general
ledger, an error exists.
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 The following types of errors should be verified to

balance the subsidiary and general ledgers:
 An incorrect amount is transcribed (recorded) 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 from the previous year.
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 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 temporary accounts are accounts in the following
account categories:
 Revenue, Assistance and Loan items comprising
account codes 1000 to 3999.
 Expenditure items comprising account codes 6000 to
6999.
 Transfers comprising account codes 4000 to 4099
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 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.
 At the end of each year, the temporary accounts in the
general ledger are closed to the net assets/equity
account as described above.
 Any subsidiary ledger corresponding to a temporary
account in the general ledger also is considered
closed.
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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.
 These permanent accounts carry their previous year's
balance forward to the next fiscal year.
 Any subsidiary ledgers corresponding to permanent
account in the general ledger also carry forward to the
next year.