KKHSOU

INTRODUCTION TO LEDGER

UNIT STRUCTURE

Learning Objectives

Introduction

Meaning of Ledger

1.	Need for Ledger and Sub-division of Ledger

Format of a Ledger Account

Ledger Posting

Procedure of balancing an account

Distinctions between Journal and Ledger

Let us Sum Up

Further Readings

10.

Answers to check your progress

11.

Possible Questions

LEARNING OBJECTIVES

After going trough this unit you will be able to
	know the meaning of ledger
	learn the posting of journal entries in the respective ledger accounts
	identify the differences between journal and ledger
	balance a ledger account

INTRODUCTION

In the earlier unit we have discussed the rules of debit and credit and besides the meaning of journal, the steps in journalizing and format of ledger accounts.

In this unit, we are going to discuss the meaning of ledger, its need and subdivision. Ledger accounts are prepared with the help of journals to show the position of each individual accounts separately.

At the end of the unit, we will discuss the procedure for balancing an account and the differences between ledger and journals.

MEANING OF LEDGER

Meaning of Ledger :

According to V.G. Vickery, “Ledger is a book of account which contains in a suitably classified form, the final and permanent record of trader’s transactions”. It is essentially a collection of five types of accounts – Assets, Liabilities, Capital, Revenue and Expenses.

According to William Pickles – “A Ledger is a most important book of account and is the destination of the entries made in the subsidiary books.”
Thus, Ledger is a book which contains records of all transactions permanently in a summarized and classified form. It is the book of final entry and is the principal book of accounts.

Ledger may be defined as a place where transactions of similar nature are put together. For example, transactions relating to purchase of goods will be put together in purchase ledger. It will help in ascertaining total purchases on a particular date without much time and effort.

Form of ledger
Left hand side of the account is called debit side indicated by “Dr.”
Right hand side of the account is called credit side indicated by “Cr.”
In the middle of the account, the name of the account is written. For example, Cash Account, Furniture Account, Purchase Account etc.

For posting the debit accounts of the journal:
'Date' column on debit side: In this column (1) the date on which the particular transaction in the journal has been recorded is written.
'Particulars' column on debit side: In this column (2) the names of the accounts which has been credited in journal are recorded preceded by the word “To”.
'J.F.' column on debit side: The page number of the journal book on which the particular transaction appears is written column (3).
' Amount' column on debit side: In this column, (4) the amount recorded against the credit account in journal is written.

For posting the credit accounts of the journal:
'Date' column on credit side: In this column (5) the date on which the particular transaction in the journal has been recorded is written.
'Particulars' column on credit side: In this column (16) the names of the accounts which has been debited in journal are recorded preceded by the word “By”.
'J.F.' column on credit side: The page number of the journal book on which the particular transaction appears is written column (4).
'Amount' column on credit side: In this column, the amount recorded against the debit account in journal is written.

Need for and Sub-division of ledger

Need for Ledger:
The need of a ledger can be summarized as under. A Journal fails to give complete information regarding an account at a glance at a particular point of time because of the scattered entries of the transactions in different pages. This defect gives birth to ledger. The ledger brings together these dispersed entries regarding an account from the Journal to a place in a condensed and summarized form and gives a complete picture including its final position at a glance. The necessity of obtaining summarized and condensed information in respect of each class of transactions at a particular point indicates the need of a ledger. All information regarding an account is available from Ledger. So it is called the king of all books.

Sub-Division of Ledger:
Ledger can be primarily subdivided into two:
(i) Personal Ledger; and
(ii) General Ledger.

(i) Personal Ledger : The Ledger which contains the accounts of persons or organizations is called Personal Ledger. These Accounts are relating to persons or organizations whom goods are bought or to whom goods are sold on credit. The Personal Ledger is again subdivided into (a) Debtors' Ledger and (b) Creditors' Ledger.

(a) Debtors' Ledger : It contains the accounts of debtors to whom goods are sold on credit. It is also called Sales or Sold Ledger. The name “Debtors' Ledger” is more appropriate than Sales or Sold Ledger as it contains Debtors’ Accounts and not the Sales Accounts.

(b) Creditors' Ledger : It contains the accounts of creditors from whom goods are bought on credit. It is also called Purchases or Bought Ledger. The name “Creditors' Ledger” is more appropriate as it contains the Creditors’ Accounts and net the Purchases Accounts.

(ii) General Ledger : The general ledger, is also known as the nominal ledger. It is the main accounting records of a business firm which uses double-entry system of book-keeping. It contains accounts like current assets, fixed assets, liabilities, revenue and expense items as well as, gains and losses.
General ledger may be sub-divided into:-

(a) Impersonal Ledger: Impersonal Ledger contains the accounts relating to Assets, Expenses, Incomes, Cash Book and Petty Cash Book.

(b) Private Ledger: It contains the accounts of confidential nature like Capital, Drawing and Profit and Loss Accounts.

CHECK YOUR PROGRESS

Q1. What do you mean by ledger?

Q2. Fill in the blanks

a) Ledger can be primarily divided into i)…………….and ii)………………………..
b) The ledger which contains the accounts of persons or organisation is called ………………………..ledger
c) Personal ledger is subdivided into i) ……………….and ii)………………………….
d) Debtors ledger is also called …………………or …………………..ledger

FORMAT OF A LEDGER ACCOUNT

There are two types of forms for writing up Ledger Accounts namely:

(a) Horizontal form; and (b) Vertical or 'T' shaped form.

These are discussed below:

(a) A Horizontal Ledger Account is prepared as under:

In this form of ledger, balance is ascertained after every transaction. This method is generally used in bank. Where the accounts are maintained in computers through the use of accounting software like Tally.s

(b) A Vertical or 'T' shaped form is ruled as under:-

LEDGER POSTING

Posting is a process of transferring debit and credit aspects of the entries appearing in the journal and other books of original entry to the debit and credit sides of the relevant accounts in the ledger. Postings are made using the word ‘To’ and ‘By’ as a prefix on the debit side and credit side respectively. The aim of posting is to make a classified and summarized record of all business transactions under appropriate account heads.

Basic Points Regarding Posting:
The following steps are followed for ledger posting-

For posting the different transactions from journal, separate accounts should be opened in ledger.
The transactions relating to a particular account should be recorded in the respective account only, though transactions relating to that account have taken place on different dates.
Transactions should be posted in ledger in order of dates
The account which has been debited in journal will be posted on the credit side of the account in ledger. It will be recorded in ‘particulars’ column on the credit side preceded by the word ‘By’.
The account which has been credited in journal will be posted on the debit side of the account in ledger. It will be recorded in ‘particulars’ column on the Debit side preceded by the word “To’.
In ‘J.F.’ column, the journal folio number where the transaction has been recorded in journal should be entered. At the same time, ledger folio number of the ledger book where the particular account appears will be entered in ‘L.F.’ column of journal.
The ledger accounts should be balanced periodically.

PROCEDURE Of BALANCING AN ACCOUNT

Before discussing the procedure of balancing an account let us first discuss what balancing of an account means?

Balancing of an account implies the process of ascertaining the net difference of an account after totaling of both sides – viz. debit side and credit side.
In simple words, balancing means the insertion (writing) of the difference between the total of 'amount' columns of the two sides i.e debit side and credit side. The amount of difference is written in the smaller (smaller total) side, so that the (grand) totals of the two sides becomes equal.

Balancing is done periodically, i.e., weekly, monthly, quarterly, half-yearly or yearly, depending on the requirements of the business.

The ‘balance’ is a term used in accounting which means the difference between the two sides of any account, or the total of the account containing only debits and only credits.
A computerized system will usually show the balance of the account after each transaction, but in a manual system we must calculate the balance. The balance of an account shows the position of an account a particular date.

Procedure for Balancing an Account:
The following procedure is to be followed for balancing of an account

(i) Totaling the 'amount' columns: On a rough sheet of paper, the total of the 'amount' columns of two sides of the account concerned are to be ascertained.

(ii) Determining the balance: The difference of the totals of two sides, called balance is then find out.

(iii) Entering the balance on the smaller side: If the total of the debit side is more, the difference is to be put in the 'amount' column on the credit side the account by writing the words ‘By Balance c/d’ in particulars column. If the total of the credit side is more, the difference is to be put in the 'amount' column on the debit side the account by writing the words ‘To Balance c/d’ in 'particulars' column. This will be done on the date of balancing and the date will be entered in the date column.

(iv) Totaling both the columns: After putting the difference in the appropriate side of the account, both sides of the account is to be totaled. The total of both the sides will be equal. A thin line above the total and two parallel lines below the total are to be drawn.

(v) Taking the balance on the opposite side: Lastly, on the next of the balancing date, the debit balance i.e. the figure written against 'To Balance c/d', will be written on the credit sidethe account by writing the words ‘By Balance b/d’ in the 'particulars' column. Similarly, the credit balance figure written against 'By balance c/d', will be written on the debit side by writing the words ‘To Balance b/d’ in the 'particulars' column.

If the Balance b/d (brought down) appears on the debit side, it indicates that the account has a Debit Balance. On the other hand, if the balance b/d (brought down) appears on the credit side, it indicates that the account has Credit Balance.

Exercise : 1
We will journalise the following transactions in the
books of ABC Company and ledger accounts will be balanced on 15th August, 2008.
2008
Aug. 1 Purchase goods for Rs. 1,000.
Aug. 10 Goods sold for Rs. 5,000

Journal entries

Exercise : 2

2005
Jan. 30. Received cash on account of Sales Rs. 8,000;
Commission received Rs. 500, Interest received
Rs. 4,000.
Jan. 31 Paid cash on account of Purchase Rs. 5,000;
Commission paid Rs. 1,000, Interest paid Rs. 2,000.
Pass Journal entries and post them in the respective ledger accounts, also balance them on January 31, 2005

CHECK YOUR PROGRESS

Q1. Fill in the blanks:

a) Posting is a process of transferring ……… and ……………………….aspects
b) Posting are made using the words …………..and ……………………
c) Balance b/d implies balance………………….

DISTINCTIONS BETWEEN JOURNAL AND LEDGER

Following are the distinctions between journal and ledger.

Sl. No.	Points of Distinction	Journal	Ledger
1.	Nature	Journal is a book of primary entry.	Ledger is a book of final entry.
2.	Basis of recording	In journal, transactions are recorded on the basis of voucher.	Here transactions are recorded from the journal.
3.	Manner of recording	Here transactions are recorded in order of happening i.e. date wise.	Here transactions are recorded on the basis of ‘account heads’.
4.	Narration	Every entry in the journal is followed by a narration.	Posting in the Ledger is not followed by any narration.
5.	Form of information	It provides information in scattered form.	It provides information in a summarized and classified form.

ACTIVITY

Record the following transactions in journal, and prepare the ledger accounts.
2008
Sept. 1 Business started with cash Rs. 1, 00, 000.
Sept. 2 Goods purchased for Rs. 10, 000.
Sept. 3 Goods sold to Western Company on credit for Rs. 5, 000
Sept. 4 Cash deposited into bank Rs. 10, 000
Sept. 5 Cash received from Western Company Rs. 2, 000

LET US SUM UP

	In this unit we discussed the concept of Ledger. Ledger is a book which contains records of all transactions permanently in a summarized and classified form.
	We also discussed the need for ledger and sub-division of Ledger. Ledger can be subdivided as under:
	There are two types of forms for writing up Ledger Accounts namely: (a) Horizontal form; and (b) Vertical or 'T' shaped form.
	Basic points regarding ledger posting and the procedure for balancing an account.
	And finally the distinctions between Ledger and journal were discussed