Financial Accounting

What is the Ledger and its purpose in Bookkeeping?

0 0 votes
Article Rating

After we have finished part of recording the transactions in the Journal, the next part of the accounting process is to post them to the ledger. The ledger is the principal book of the accounting system. It contains various accounts in which transactions relating to that particular account are recorded.

A ledger is the set of all the accounts, debited or credited, in the journal and subsidiary books.

Benefits of Ledger

A ledger is very useful and provides valuable information to the organisation. The net result of all transactions in respect of a particular account on a given date can be ascertained only from the ledger.

For example, the proprietor on a particular date wants to know the amount due from a specific customer or the amount the firm has to pay to a specific supplier, and such information can be found only in the ledger. Such information is very complex to ascertain from the journal because the transactions are recorded in the chronological order and are not classified.

For easy posting and location, accounts are opened in the ledger in some specific order. For example, they can be opened in the same order as they appear in the profit and loss account or the balance sheet

ledger and its purpose in bookkeeping

Format of A Ledger Account

A ledger account has two sides-debit (left part of the account) and credit (right part of the account). Each of the debit and credit side has four columns. (i) Date (ii) Particulars (iii) Journal folio, i.e. page from where the entries are taken for posting and (iv) Amount.

Format of a ledger account

As per this format, the columns will contain the information as given below:

The title of the Account: It indicates the name of the particular account.

Dr. /Cr.: it refers to debit or credit aspect of the transaction.

Date:  Date of transactions is posted in the chronological order in this column.

Particulars: Name of the accounts and events concerning the original book of entry is written on the debit/credit side of the account.

Journal Folio: It records the page number of the Journal on which relevant transaction is recorded. This column is filled up at the time of posting and not a recording.

Amount: This column is used to fill the amount of the transaction as recorded in the Journal.

Rules of Posting to Ledger

  1. A separate account is opened in ledger book for each account and entries from ledger posted to respective account accordingly.
  2. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the ledger. The word ‘To’ be used in the particular column with the accounts written on the debit side while ‘By’ is used with the accounts written in the particular column of the credit side. These ‘To’ and ‘By’ do not have any meanings but are used to represent the account debited and credited.
  3. The concerned account debited in the journal should also be debited in the ledger, but reference should be of the respective credit account.

Balancing an Account

At the end of each month and on year-end all accounts in the ledger are balanced. Balancing here means to ascertain the net balance of the all debit and credit transactions in a particular account.

For the accounts having nature in debit balance, we use ‘by balance c/d’ read as ‘by balance carried down’. On the opening date of the new month, the same balance is written as ‘To balance b/d’ read as ‘To balance b/d’. Similarly, accounts having balance in credit nature balancing is done by writing ‘To balance c/d’ and at the beginning of the new month ‘By balance b/d’ is written.

However, nominal accounts are not balanced at the end of the year; they are transferred to Profit & Loss A/c (Trading A/c in case of Direct expenses). Hence, they have no opening balance at the beginning of the year. Only personal and real accounts can show balances.

Show More
0 0 votes
Article Rating
Subscribe
Notify of
guest
3 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
lenjerii pat

people should appreciate this

Accounts Definition

Well described article on Ledger Book in Accounting. With the format of Ledger, and their rules, benefits.
We also work on Accounting notes and we have tried to present Accounting articles such as Accounting Principles, Concepts, Terms, Standards, Journal Entries, Cash Book, Subsidiary Books and many other articles related to Accounting in a simple and in an understandable manner.

Accounts Definition

Well described article on Ledger Book in Accounting. With the format of Ledger, and their rules, benefits.
We also work on Accounting notes and we have tried to present Accounting articles such as Accounting Principles, Concepts, Terms, Standards, Journal Entries, Cash Book, Subsidiary Books and many other articles related to Accounting in a simple and in an understandable manner.

Related Articles

Back to top button
3
0
Would love your thoughts, please comment.x
()
x
%d bloggers like this: