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What is a nominal ledger?

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Last editedNov 20202 min read

Bookkeeping plays an extremely important role in your company’s finances, and even if you outsource your accounting function to a professional, it’s a good idea to understand the nuts and bolts of how your business keeps track of financial transactions. As such, you should familiarise yourself with the nominal ledger, one of the key elements of your firm’s financial records. Find out a little more information about nominal ledgers and nominal ledger software. First off, what is a nominal ledger?

Nominal ledger definition

The nominal ledger is the main place where your business records financial transactions. It contains a record of all the payments, expenses, and assets of the business, while also containing all the information you need to compile financial reports like profit and loss and the balance sheet. Your company’s nominal ledger will also include a chart of accounts (an index of all the accounts on the ledger that you can break down according to different subcategories, i.e. assets, liabilities, shareholders’ equity, etc.).

You can use the nominal ledger for a wide range of accounting tasks, including:

  • Making journal entries

  • Recording accruals and prepayments

  • Producing financial statements

  • Creating budgets

  • Developing cost centres and departments

Of course, the nominal ledger is also a factor in a range of other business-critical accounting tasks. Let’s explore one of the most significant of these tasks – nominal ledger reconciliation.

Nominal ledger reconciliation

Bank reconciliation refers to the process of checking that your business bank account matches up with your accounting records. Essentially, you’ll need to cross-reference accounts on your nominal ledger with sources of financial information (i.e. bank statements and credit card statements) to verify that the balances listed on the nominal ledger are correct. This enables you to ensure the integrity of your accounts, and as such, it’s a key task for businesses preparing for an audit. 

Nominal ledger vs. general ledger

When you’re reading up on how to manage your company accounts, you may see people using the terms “nominal ledger” and “general ledger” interchangeably. There’s no need for confusion, because the two terms really are interchangeable. So, when it comes to nominal ledger vs. general ledger, just remember that the only difference is the name – in all other regards, they mean exactly the same thing.

Understanding nominal ledger software

Historically, all accounting entries were written by hand in physical journals (referred to as ledgers), and while some businesses may continue this practice, the majority of companies have gone digital. With nominal ledger software (part and parcel of standard accounting software packages), there’s no longer any need to update your nominal ledger manually. In fact, because modern accounting software maintains running totals and automatically enters new transactions in the appropriate daybook, traditional nominal ledgers are more or less obsolete.

Nominal ledger example

If you’re interested in how to set up a nominal ledger for your business, there are plenty of nominal ledger examples and templates available online. Browse around to find an option that suits your business. Of course, it’s not always practical to handle your company’s financial records yourself, especially if your business is growing quickly and you don’t have a background in accounting or finance. Hiring an accountant to handle your company books is a smart move – it frees you up to handle the big picture while leaving the technical side of the accounting process in the hands of a professional.

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