2.2 - Ledger

CHAPTER 2: ACCOUNTING PROCESS
2.2 - LEDGER
Introduction:
All business transactions are recorded in the books of accounts in two stages.In the first stage the transactions
are recorded in journal and in the second stage they are entered in another book called ‘ledger’.All transactions
are recorded in journal in chronological order.After recording the transactions in the journal, recorded entries are
classified and grouped into by preparation of accounts and the book, which contains all set of accounts (viz.
personal, real and nominal accounts), is known as Ledger.It is known as principal books of accounts in which
account – wise balance of each account is determined.
Ledger: Ledger is a book which contains various accounts. It is a set of accounts.Ledger is a register, having a
number of pages, which are numbered consecutively.One page in the ledger is usually alloted to one account.
Thus ledger is a collection of all accounts debited or credited in the journal. It contains records of all transactions
permanently in the summaraised and classified from. It is the main or principal or the most important book of
business and hence, is rightly called the “king” of all the books of accounts.
Other names of Ledger:

Other Names Reasoning
1. Principal Book Debit and credit aspect of each transaction is recorded here, and constitutes
the basis for preparation of Trial Balance and Final Accounts.
2. Secondary Book of Entry It is the second stage in the accounting process
3. Book of Final Entry The ledger is the final destination of all transactions
Form of Ledger: A Ledger may be kept in the form of bound books, loose leaf sheets, punched cards sheets,
floppy, disketts (in case of computer is used) or any other such device.
Utility of a Ledger
The main utilities of ledger are:
1. It provides complete information about all accounts in one book.
2. It enables to ascertain what the main items of revenues are.
3. It enables to ascertain what the main items of expenses are.
4. It enables to ascertain which are the assets and of what values.
5. It enables to ascertain which are the liabilities and of what amounts.
6. It facilities the preparation of final accounts.
Specimen of Ledger Accounts: 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.
Dr Account Cr
Date Particulars JF Amount Date Particulars J.F Amount
No Rs. No Rs.
Classification of Ledger Accounts: The number of transactions depends up on the volume of business. When the
firm is small, the number of transactions is limited. When the firm is large, the number of transactions is more.
The enterprises having large number of transactions divide ledgers into:
1. Trade Receivables Ledger/Sales Ledger/Sold Ledger/Customers Ledger/Receivables Ledger/Debtors Ledger:
In this ledger the accounts of all the customers (Trade receivables, who regularly purchase goods from the
business on credit) are maintained, all transactions relating to each customer is posted to their respective
Fundamentals of Accounting by G.Ravi Shankar Sagar 2016 - E1

accounts. It is easy to ascertain the amount due from each customer at any point of time. The trade
receivables ledger shows debit balance (due from customers).
2. Trade Payables Ledger/Purchase Ledger/Bought Ledger/Suppliers Ledger/Payable Ledger/Creditors Ledger: In
this ledger, the accounts of all the suppliers (Trade payables, from whom the business purchases the goods
on credit are maintained). All transactions related to each supplier are posted to their respective accounts. It
is easy to ascertain the amount payable to each supplier at any point of time. The trade payables ledger
shows credit balance (due to suppliers)
3. General Ledger/Nominal Ledger/Main Ledger/Principal Ledger/Impersonal Ledger: In this ledger, all accounts
related to the assets, incomes, expenses are maintained.
Example: Machinery a/c, Commission a/c, Repairs a/c and Discount a/c etc.
Note: Private Ledger – Some traders may maintain a private ledger which contains the personal accounts of
proprietors.
Example: Capital a/c, Drawings a/c etc.
Differences between Journal and Ledger
Basis of Distinction Journal Ledger
1. Nature of book It is book of original or prime entry. It is book of final or secondary entry.
2. Basis for It is prepared on the basis of source It is prepared on the basis of journal.
preparation documents of transactions.
3. Stage of recording Recording in the journal is the first Recording in the ledger is the second stage.
stage
4. Object It is prepared to record all transactions It is prepared to know the effect of various
in the chronological order. transactions effecting a particular account.
5. Format In the journal there are five columns: In ledger there are identical four columns on
Date, Particulars, Ledger folio, Debit, the debit side and credit side:
Credit Date, Particulars, Journal Folio, Amount.
6. Balancing Journal is not balanced. All ledger accounts (except nominal accounts)
are balanced in the ledger.
7. Narration Narration is written for each entry Narration is not necessary.
8. Name of the The process of recording in journal is The process of recording in the ledger is
process of called “Journalising”. called “Posting”.
recording entries
9. Basis of Journal directly does not serve as basis Ledger serves the basis for the preparation of
preparation of for the preparation of final accounts. final accounts. So it is called “Principal book”.
final accounts
Posting: Separate account is opened in ledger for each transaction in the journal and all transactions are posted
to respective ledger accounts.
Meaning of Posting: Posting is the process of transferring the transactions recorded in the books of original entry
in the concerned accounts opened in the ledger. It may be done daily, weekly, fortnightly or monthly according to
the convenience and requirements of the business.
Necessity of Posting: It is necessary to post all journal entries into various accounts in the ledger because posting
helps us to know the net effect of various transactions during a given period on a particular account.
Procedure of Posting: The procedure of posting is given below:
Procedure for Posting of an account which has been debited in a transaction
Step 1 With the help of an index, open that page on which the concern account appears.
Step 2 Enter the date of the transaction, in the ‘Date column’ on the debit side.
Step 3 The word ‘To’ is used in particulars column with the accounts written on the debit side. The
concerned account debited in the journal should also be debited in the ledger but reference should
be of respective credit account.
Step 4 Record the page number of the journal in the, ‘Folio Column’ on the debit side and in the journal
write the page number of the ledger on which a particular account appears in the ‘LF Column’.

Step 5 Enter the relevant amount in the ‘Amount Column’ on the debit side
Procedure for Posting of an account which has been credited in a transaction

Step 1 With the help of an index, open that page on which the concern account appears.
Step 2 Enter the date of the transaction, in the ‘Date column’ on the credit side.
Step 3 The word ‘By’ is used in particulars column with the accounts written on the credit side. The
concerned account credited in the journal should also be credited in the ledger but reference should
be of respective debit account.
Step 4 Record the page number of the journal in the, ‘Folio Column’ on the credit side and in the journal,
write the page number of the ledger on which a particular account appears in the ‘LF Column’.
Step 5 Enter the relevant amount in the ‘Amount Column’ on the credit side
Balancing of Accounts: At the end of the each month or year or any particular day it may be necessary to
ascertain the balance in an account. Balancing may be defined as ‘the process of finding the difference between
the total of debits and total of credits of an account and writing the difference in the lighter/lesser side, so that
the total of two sides becomes equal’. Suppose a person has bought goods worth Rs.1000 and has paid only
Rs.850; he owes Rs.150 and that is balance in his account.
Balancing Procedure:
 Balance of an account is the difference between the total of debit and total of credit appearing in an account.
It may be the debit balance or a credit balance or a nil balance.
 If the total of debit side is more than the total of credit side, the difference is known as ‘debit balance’.
 If the total of credit side is more than the total of debit side, the difference is known as ‘credit balance’.
 If the total of debit side is equal to the total of credit side, then the account shows ‘zero balance’ or ‘nil
balance’.
 The credit balance is written on the debit side as ‘To Balance c/d’ means ‘carried down’. By doing this, two
sides will be equal. The total are written on the two sides opposite one another. Then the credit balance is
written on the credit side as ‘By Balance b/d (i.e., brought down)’. This is the opening balance for the new
period.
 The debit balance similarly is written on the credit side as ‘By Balance c/d”, the totals then are written on the
two sides as shown above as then the debit balance written on the debit side as, ‘To Balance b/d’, as the
opening balance of the new period.
Types of Accounts Balanced: Normally, personal accounts and real accounts are balanced. Nominal accounts are
not usually balanced but are closed by transferring them to Income Statement. However, nominal accounts are
also balanced for the purpose of preparing trial balance.
Balances of different types of Accounts:

1. Personal Account: It shows either a debit balance or a credit balance. If a personal account shows debit
balance, that a person is a Trade Receivable (Debtor) to the business. If a personal account shows credit
balance, that a person is a Trade Payable (Creditor) to the business.
2. Real Account: It generally shows debit balance
3. Nominal Account: Expenses and Losses accounts shows debit balance whereas Incomes and Gains accounts
will show the credit balance.
Significance of Balancing: Balancing of an account is necessary to ascertain the net effect of all transactions
posted to that account during a given period. These balances are useful for the preparation of Trial Balance and
Final Accounts.

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CHAPTER 2: ACCOUNTING PROCESS

Other names of Ledger:

Fundamentals of Accounting by G.Ravi Shankar Sagar 2016 - E1

Fundamentals of Accounting by G.Ravi Shankar Sagar 2016 - E1

Procedure for Posting of an account which has been credited in a transaction

Balances of different types of Accounts:

Fundamentals of Accounting by G.Ravi Shankar Sagar 2016 - E1

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