The Nominal and Investment Ledgers

Nominal Ledger

The nominal ledger contains a list of nominal accounts. These nominal accounts are used to collate the figures needed to produce the final accounts. Each account corresponds to a category of asset, liability, income, expense and so on.

Each nominal account in Trust Accounts holds the following balances:

• Year End: As at the client’s year end.
• Last Year: As at last year’s year end (i.e. the ‘comparative’ balance).
• Previous Year: As at the previous year end (i.e. the ‘precomparative’ balance).
• To Date: The year to date balance including post-year end entries.

The first three balances are available in Accounts Formatting. The To Date balance allows you to continue processing current entries while the year end accounts are finalised. When the accounts have been finalised a Year End Routine is run and the balances are ‘rolled back’. The Year End balance is moved to Last Year, and Last Year is moved to the Previous Year. The Year End balances are recalculated to include the post-year end entries as they now fall into the current financial year (unless it took more than a year to finalise the accounts). The To Date balances are also recalculated.

Investment Ledger

The investment ledger contains a list of investment accounts. The investment accounts represent the client’s portfolio. There are two types of investment account:

• Investment Accounts for Securities: These are usually the majority of the investments. Each account is represented by a security code from the Securities List and its description is the description on the Securities List.
• Investment Accounts for Properties: These are for other assets that are client-specific such as real estate, antiques etc. When a Property Account is set up it has its own property description. Property Accounts do not have a code.

There are a number of differences between accounts for securities and for properties:

• Property Accounts do not have a code, only a description.

• Property Accounts do not have a market value, whereas the system can calculate the market value of a holding of a security by looking up its price.

• The system cannot calculate CGT on Properties. The reason for this is that there are different CGT rules for different types of property. Also disposals of properties take place much less often than disposals of securities. So there has been little demand for this facility.

In some cases it is debatable whether to set a new investment up as a security or as a property. For instance an unlisted security can be set up either way. However if it is intended to calculate CGT on it or if its market value is required on the investment schedule then it should be set up as a security.

An important difference between the nominal ledger and the investment ledger is that the nominal ledger is a ‘balance forward’ ledger while the investment ledger is an ‘open item ledger’. This means that at the start of each financial year each nominal ledger account begins with an opening balance entry, whereas on the investment ledger the capital history is shown from the date it was first acquired. On the nominal ledger prior year entries are still available if you choose not to delete them at the year end, but by default they are not included on reports. On the investment ledger income entries can optionally be deleted at the year end. However most users choose to keep them for a few years until any tax queries have been resolved. Capital entries cannot be deleted at the year end until the holding falls to zero.

Integration Between Nominal and Investment Ledgers

The nominal and investment ledgers are completely integrated in that a single entry sits in both ledgers. So a dividend for Shell appears on the Dividends account in the nominal ledger and on the Shell account in the investment ledger. It can be edited by drilling down through either ledger.

This means that when an investment entry is made it is necessary to specify both the investment account and the nominal accounts. However when each investment account is created it has nominal accounts specified on it that are offered as the posting accounts in Data Entry. In most cases these defaults are correct. So entering nominal accounts takes little time in Data Entry.