Meaning of Ledger
A ledger is a secondary book of recording in financial accounting. In financial accounting ledger holds a very crucial place,because the closing balance shown in different ledger accounts is utilized in preparing Trial Balance.
Ledger accounts in financial accounting are prepared for each and every accounts which are appearing in the journal throughout the financial year.
Ledger accounts are prepared for real accounts,personal accounts and nominal accounts.
Format of Ledger:
Name of the account
Dr. Cr.
Date | Particulars | Voucher No. | Amount | Date | Particulars | Voucher No. | Amount |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Definition of the headings
As per this format the columns will contain the following information:
An account is debited or credited according to the rules of debit and credit
Each category of account has already been explained.
Title of the Account : The name of the item is written at the top of the format account title. The account title ends with the suffix 'Account'.
Dr./Cr. : Dr means the debit side of the account which is on the left and Cr. Meaning The credit side of the account, i.e. the right side.
Date: The year, month, and date of the transaction are posted in chronological order. In this column.
Particulars : The item is named in reference to the original book of entry.Written on the debit/credit side of the account.
Journal Folio/Voucher No.: In this the page number of the original book of entry is recorded.Which relevant transaction has been recorded. This column is filled at the time of Posting.
Amount: This column records the amount in the corresponding numerical figure. What is entered in the amount column of the original book of entry.
Classification of Ledger Accounts
In Financial accounting all ledgers are placed into five categories, namely: Assets, Liabilities, Capital, Revenue/Profit and Expense Loss. These all accounts can be further placed into two groups, namely permanent accounts and temporary accounts.
All permanent accounts are balanced and carried forward for the next accounting period.temporary accounts are finally closed by shifting the accounting period to trading and profit and loss account.
All permanent accounts appear in the balance sheet.
Thus, all Assets, liabilities and capital accounts are permanent accounts and all revenue and expense accounts are temporary accounts.
This classification is also relevant to the preparation of financial statements.
5 steps of Posting from Journal to Ledger
Posting is the process of transferring entries from the original books. Entry in the book (journal).
In other words, posting means grouping all one place for meaningful transactions in respect of a particular account draw conclusions and proceed with the accounting process.
Step 1 Locate in the ledger, the account to be debited as entered in the journal.
Step 2 Enter the date of transaction in the date column on the debit side.
Step 3 In the ‘Particulars’ column write the name of the account through which it has been debited in the Journal.
Step 4 Enter the page number of the journal in folio no.or voucher no. column and in the journal write the page number of the ledger on which the particular account is recorded.
Step 5 Enter the relevant amount in the amount column on debit side of the particular account which has to be debited and same procedure to be followed on the credit side of the amount which has to be credited.
Illustration : Prepare Ledger accounts on the following journal entries
1 Jan commence business with cash 50,00,000 building 25,00,000.
3 Jan purchase raw material worth Rs. 20,00,000 from Bombay.
5 Jan paid transaction charge Rs. 1,00,000 and tall tax Rs 5000
7 Jan paid maintenance charge Rs. 5000.
9 Jan paid wages Rs. 20,000 by cheque and 20,000 by cash.
11 Jan paid outstanding wages to Mr. A Rs.500
13 Jan paid Rs. 1500 for driver salary.
15 Jan paid Rs. 15000 for insurance by cheque
17 Jan purchase furniture worth Rs. 5,00,000 from Mr. Ajay and paid 500 for carriage.
19 Jan sold goods Rs. 20,00,000 and allowed 5% cash discount and 2% trade discount.
21 Jan sold goods Rs. 20,00,000 for cash.
23 Jan goods worth Rs. 10,000 were destroyed due to fire in the good down
25 Jan goods worth Rs. 20,000 were distributed as free sample
27 Jan machinery purchase worth Rs. 10,00,000 by cash and received cash discount 1.6 %
and trade discount 2.5%
29 Jan borrowed Rs. 5,00,000 from Mr.Asif.
31 Jan with draw cash from business Rs. 20,000 for promoters wife.
Sample Ledger Account
Complete solution for the above illustration of Ledger accounts in Financial Accounting
Conclusion
In financial accounting Ledgers accounts plays a pivotal role as they form the foundation on which Trial Balance is prepared which becomes instrumental in the preparation of Final Accounts i.e Trading Accounts,Profit & Loss Accounts & Balance Sheet.
FAQs
What is Balancing in Ledger?
What are the types of accounts?
What is Golden rules of Financial Accounting ?
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