Ledger: Introduction, Meaning, Purpose, and Mechanics

Introduction of Ledger

A ledger is a group of accounts that summarizes all the financial transactions of a business. Most people have seen a bound book labelled “Ledger.” In it, the accounts of a small business or industry are recorded in a classified and summarized form.

A ledger contains all accounts affected by various business transactions and serves as a classified and summarized record of personal, real, and nominal accounts. All transactions first recorded in the journal must be posted to the ledger. While the journal is a chronological record of transactions showing which accounts are debited and credited, the ledger organizes them by account to show the overall effect of transactions.

Meaning and Purpose of Ledger

A ledger consolidates transactions related to each head of account in one place. It contains the complete set of accounts for a business and is considered the book of final entry because all journal entries are transferred (posted) to it.

“A ledger is a book which contains, in a summarized and classified form, a permanent record of all transactions.”

The ledger is crucial as the trial balance is prepared from it, which in turn is used to prepare the financial statements. Hence, it is also called the principal book of account.

Purpose of a Ledger

1. Quick access to information: Ledger accounts show the relationship between the business and its transactions.
2. Proper control over transactions: Each type of transaction is recorded in a separate ledger account.
3. Preparation of trial balance: Ledger balances help ensure books are arithmetically correct.
4. Preparation of financial statements: Trial balance from ledger accounts serves as the basis for financial statements.

Features of Ledger

1. Master record of all business accounts.
2. Prepared from the journal.
3. Shows the current balance in all accounts.
4. Basis for preparing trial balance and final accounts.
5. Summarizes the effect of transactions on assets, liabilities, capital, income, and expenditure.

Utility of Ledger

1. Provides complete information on a particular account (e.g., cash, bank).
2. Records income and expenses.
3. Helps prepare trial balance.
4. Assists in preparing final accounts.

Format of a Ledger Account

Ledger accounts are usually prepared in ‘T’ shape, with two sides:

• Left side: Debit (Dr.)
• Right side: Credit (Cr.)

Dr.	Name of the account for example XYZ Account						Cr.
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
Date of the transaction	Name of the other account		Amount of the transaction	Date of the transaction	Name of the other account		Amount of the transaction

Columns in a Ledger Account:

1. Date: Date of the transaction.
2. Particulars: Details of the transaction. Prefix “To” for debit and “By” for credit.
3. Journal Folio (J.F.): Page number of the journal entry.
4. Amount: Value of the transaction.

The ledger helps a trader know totals of cash, purchases, expenses, income, liabilities, and receivables information not directly visible from the journal.

Ledger Posting

Ledger posting is the process of transferring entries from the journal (or subsidiary books) to the ledger accounts. Key points:

1. Only one account per person or expense.
2. Cash and credit sales go to Sales Account; cash and credit purchases go to Purchase Account.
3. Do not omit “Dr.” (Debit) and “Cr.” (Credit).
4. Always fill the date and journal folio.

Balancing of Ledger Accounts

Balancing ensures that the debit and credit sides of an account are equal.

Steps for Balancing:

1. Total the debit and credit columns. Calculate the difference.
2. If debit > credit: Record the difference on the credit side as By Balance c/d and If credit > debit: Record the difference on the debit side as To Balance c/d.
3. Total both sides and draw lines above and below the totals.
4. Carry forward balances to the next period as To Balance b/d (debit) and By Balance b/d (credit).

Debit and Credit Balances:

1. Debit balance: Total of debit > credit.
2. Credit balance: Total of credit > debit.

Mechanics of posting for example 

1st April 2025 – Salary is paid through cheque – 10,000

Journal
Date	Particulars	L.F.	Amount (Dr.)	Amount (Cr.)
1st April 2025	Salaries Account …...     Dr.	11	10,000
	To Bank Account	12		10,000
	(Being Salaries paid through cheque)

Dr.	Ledger – Salaries Account						Cr.
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
1st April 2025	To Bank Account	22	10,000

Dr.	Ledger – Bank Account						Cr.
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
				1st April 2025	By Salaries Account	22	10,000

Use of “To” and “By”

1. “To” is used for debit side entries.
2. “By” is used for credit side entries.
3. These words are customary and do not affect accounting meaning. Modern accountants often omit them.

Debit balance & credit balance

1. If the total of debit side > total of credit side (Means account has debit balance)
2. If total of credit side > total of debit side (Means account has credit balance)

Debit and credit balance written on the debit side / credit side as ‘To Balance brought down’ or ‘To balance b/d’ which is the opening balance for new period.

Dr.	Ledger – Cash Account						Cr.
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
2025				2025
1st April	To Capital A/c		1,00,000	2nd April	By Bank A/c		70,000
4th April	To Bank A/c		1,000	3rd April	By Purchase A/c		5,000
24th April	To Krishna A/c		1,500	28th April	By Shyam		2,150
30th April	To Sales A/c		8,000	30th April	By Rent A/c		500
				30th April	By Salaries		3,000
				30th April	By balance c/d		29,850
			1,10,500				1,10,500
1st May	To balance c/d		29,850

Dr.	Ledger – Bank Account						Cr.
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
2025				2025
2nd April	To cash A/c		70,000	4th April	By Cash A/c		1,000
				30th April	By Balance c/d		69,000
			70,000				70,000
1st May	To Balance c/d		69,000

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