The chart of accounts

Ledgers and groups

A ledger is one account — Cash, State Bank, Rent, Sharma Traders. A group is a box that ledgers sit in — Sundry Debtors, Indirect Expenses, Current Liabilities. The chart of accounts is all of them, arranged.

The group decides where the ledger lands in a report. Put Rent under Indirect Expenses and it appears in the profit & loss. Put it under Fixed Assets by mistake and your profit is overstated by a year's rent, with nothing to warn you.

What a shop actually needs

Far less than a textbook suggests. A working chart for most trades:

• Cash, and one ledger per bank account.
• Sundry Debtors — one ledger per customer who buys on credit. Cash customers do not need one.
• Sundry Creditors — one per supplier.
• Sales and Purchases. Split them further only if you genuinely want the split in your P&L — say goods against service.
• GST ledgers — output CGST, SGST and IGST, and the input side. These are liabilities and assets, not income and expense.
• Expenses — rent, salaries, electricity, freight, packing, transport, telephone, repairs, bank charges. One ledger each, because a lump called "Shop Expenses" answers no question you will later ask.
• Capital and Drawings — what you put in, and what you take out for yourself. Keeping drawings out of expenses is what stops household spending from looking like a loss-making business.
• Round Off. Every shop needs it and few charts have it, which is why the paise go missing and nobody can find where.

Name them the way you speak

If you call it the counter cash or the gaddi, name the ledger that. The point of a chart is that the person who runs the shop can read it without translating. What must not change is where a ledger posts — sales must stay sales — but the word printed beside it is yours.

Aned Book ships the whole chart from day one rather than making rows appear as you raise documents, and the built-in ledgers can be renamed, and regrouped where regrouping is safe. A chart you cannot see is a chart you cannot check.

One ledger, one question

The test for whether a ledger should exist: is there a question you will one day ask that this ledger is the answer to? "How much did I spend on freight this year" earns a Freight ledger. "How much on miscellaneous" earns nothing, because nobody acts on the answer.

The opposite failure is a chart of 300 ledgers in which six suppliers have two spellings each. Every duplicate splits a balance in half, and the party's outstanding is then wrong in both places.

Which edition. Accounting — ledgers, vouchers, trial balance, profit & loss and balance sheet — is in Silver. Basic is billing and inventory: invoices, stock, parties, outstanding and GST reports, and no ledgers. Both prices are on the pricing page.

This page explains how book-keeping works so a shopkeeper can follow what an accountant is asking for. It is not accounting or tax advice — talk to your accountant before you rely on it for a filing or a return.

Questions

How many ledgers should a small shop have?

Usually 30 to 60, of which most are customers and suppliers. The fixed part — cash, bank, sales, purchases, GST, the expense heads, capital and drawings — is about twenty.

Can I rename a built-in ledger?

The name, yes — call the cash box whatever your shop calls it. Where it posts is fixed, because the reports and the GST summary are built on it.

Do I need a ledger for every walk-in customer?

No. A cash customer settles at the counter and needs no account. Open a ledger when somebody buys on credit and you have to remember what they owe.