LEDGER

Business transactions are recorded in Journal and is further posted into Ledger. All the accounts in journal are taken and put together makes a Ledger. Every transaction first taken into Journal also called book of original entry is further taken to Ledger also termed as Book of final entry.

 A ledger may be defined as a “book which contains in a summarised and classified form, a permanent record of all transactions”.

1. Ledger is called as Principal Book of account.
2. Ledger is a master record of all the accounts of the business.
3. It records the current balances of the accounts prepared after a certain period of time.
4.  It summarises the effect of capital , liabilities, expenses, assets and revenues.
5.  The process of transferring the transactions written in the journal to a ledger is called posting.

FORMAT OF LEDGER

Dr.                                                                                                                                                                             Cr.

Posting of journal into ledger

Example

1. Purchase of goods for cash Rs. 10,000
2. Purchase of goods from Mr.X Rs. 8000 on credit
3. Goods sold for cash Rs. 20,000
4.  Payment made to Mr. X Rs. 7,500 in full settlement.

                                                                                   Purchase A/C

                                                                                   Cash  A/C

Sales A/C

X A/C

Discount received A/C

Process of Balancing ledger accounts

• Total of debit side
• Total of credit side

The balance is written on the side where the balance is less

i.e if Debit side falls short then

• To balance c/d

If credit side falls short then

• By balance c/d

The balance of an account is known by the side which is GREATER.

Balancing of various types of ledger-

Expenses –

These accounts are not balanced but only totalled and transferred to debit side of trial balance.

Revenues-

These accounts are not balanced but only totalled and transferred to credit side of trial balance.

Assets-

When assets are balanced it shows a debit balance as the debit side of the ledger is more.

Liabilities -

When liabilities are balanced it shows a credit balance as the credit side of the ledger is more.

 Capital-

When capital are balanced it shows a credit balance as the credit side of the ledger is more but sometimes it can have a debit balance as well.

• If the debit & credit side of the accounts are equal then there will be no closing balance at the end of the period.
• After posting the transactions in journal into ledger , a statement is prepared which records all the debit & credit balances calculated while balancing ledger. Such a statement is known as Trial Balance.
• Total of Debit & credit side of Trial Balance should be equal.
• Balancing process-

Where the debit side total is more than the credit side total, as in this case, it is called a debit balance. It is shown, in particulars column, on the credit side by writing 'By Balance c/d' and totals on both sides made equal. After totalling the two sides of the account, the same balance is shown on the debit side, on the next date, by writing 'To Balance b/d' in particulars column. The term c/d is an abbreviation for carried down and b/dlis for brought down. Such balancing of accounts is done periodically, say, daily (as in the case of cash account), weekly, monthly or at any other convenient time, as and when needed.

In another situation, the total of the credit side may be more than the total of the debit side. In that case it will be called credit balance. It will be shown on the debit side by writing 'To Balance c/d' in particulars column and the totals of the two sides made equal. After totalling the two sides of the accounts the same balance will be shown on the credit side on the next date, by writing 'By Balance b/d' in particulars column.