What is a ledger?
A ledger can be visualized as a book containing a page for each of the accounts a firm maintains. Accounts are maintained to reflect assets, liabilities, owners' equity, revenues and expenses of the firm.
All business transactions in the Journal are posted in the respective accounts in the ledger so that the necessary information connected with individual accounts is obtained as and when required.
The ledger helps to achieve the following results in respect of various categories of accounts.
1. Personal accounts would show how much money the firm needs to receive from its customers and how much it has to pay to its suppliers.
2. The real accounts would reflect the values of the properties and stocks.
3. The nominal accounts would reflect the revenues earned from various sources of income and the amount spent on various expense items.
Standard Form of Ledger Account
Account Title (Name of the Account)
Debit Side Credit Side.
The ledger account is divided into two equal sides. The left hand side is called the Debit side and the right hand side is called the Credit side. The abbreviations Dr. and Cr. are placed at the top to indicate debit and credit sides. In the exhibit debit side and credit side are written in expanded form for clarity
The Procedure of Posting in the Ledger Account
The journal entry normally specifies one account to be debited and one account to be credited. The page in the ledger corresponding to one of the accounts (let us say the account to be debited) is opened and the entry is made in the following manner
Making the debit entry
The date column on the debit side is filled with the transaction date as in the journal entry..
As the account in the ledger is to be debited, the transaction is entered on the debit side. The name of the other account included in the journal entry of the transaction ( the account to be credited in the transaction) is entered in the particulars column. The account name is preceded with “To”.
The Journal folio column is used to record the page number of the journal in which the transaction (posted to the ledger now) is written.
In the amount column, the amount involved in the transaction as written in the journal entry is posted.
Making the credit entry
The page (in the ledger) corresponding to the account to be credited is opened.
The date column on the credit side is filled with the transaction date as in the journal entry on the credit side.
The transaction is entered on the credit side. The name of the other account included in the journal entry of the transaction (the account to be debited in the transaction) is entered in the particulars column. The account name is preceded by “By”.
The journal page number is written in the journal folio column.
The amount of the transaction is entered in the amount column.
Balancing of Accounts at the end of the Period
At the end of each periord, month or year, personal and real accounts are balanced.
In balancing, the difference between the total debits amounts and credit amounts is determined.
Credit balanceIf the total of credit side is bigger than the total of debit side, the difference is credit balance (the account has a credit balance). This credit balance is written on the debit side of ledger account and in the particulars column the words "To Balance c/d" are written.
Debit balanceIf the total of debit side is bigger than the total of credit side, the difference is debit balance (the account has a debit balance). This debit balance is written on the crebit side of ledger account and in the particulars column the words "By Balance c/d" are written.
After inserting "To Balance c/d" or "By Balance c/d" on the short side of the account, the totals of both sides will be same. The totals of both sides are placed in the same line at the same level in the account.
Then the balance is brought down or entered on the opposite side (heavier side) below the closing line (the line where both totals are written. The first day of the new period is entered in the date column. The words "Balance b/d" are written in the particulars column. The balance is written in the amount column.
Treatment of nominal accounts at the end of the period
The total amounts of nominal accounts are transferred to the profit and loss account at the end of the period.
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