Methods

• The nominal ledger functions with the use of two columns. The column on the left maintains a record of money spent. The column on the right records money earned. If a business earns no money, the two columns should add up to the same amount. If a business loses money, the total of the left column will be larger. If a business earns money, the total of the right column will be greater.
  
  

Relationships with Other Ledgers

• In order to maintain a complete record of all finances, it is customary to calculate nominal ledgers besides calculations of other assets. Summary reports of balances in all accounts are referred to as trial balances. By placing the nominal ledger beside trial balances and stock balances, an overall summary of loss and profit can be calculated.
  
  

Benefits

• As any business owner can verify, keeping a nominal ledger of finances is the first step to maintaining financial security. Efficiency of accounting is essential to tracking profit and loss and predicting what changes will make a business more profitable. Since the number of financial transactions is bound to increase with time, recording each expense or profit is the only way to maintain an accurate record.
  
  

Paper Audit Trail

• In addition to maintaining efficiency of records, keeping a nominal ledger also inherently creates a paper audit trail. A paper audit trail is a paper record of business expenditures and profits used as a record when a charge or payment is contested. Ultimately, this decreases the likelihood of financial fraud or internal business theft.