Ledger Accounts Unveiled: Understanding Types, Formats, and Uses

Ledger

A ledger is a group of accounts. Most of us have probably seen a bound book with the word ‘ledger’ printed on the cover. All the accounts of a small business or industry could be entered in a ledger in concerned accounts in a summarized and classified form.

A ledger is called the book of final entry, since all transactions recorded in books of original entry i.e. journal are transferred posted in the ledger.

1. “A book which contains, in a summarized and classified form, a permanent record of all transactions”.
2. Ledger is a set of accounts. It contains all accounts of the business enterprise whether real, nominal, and personal

It is the most important book of account, since the trial balance is drawn from it and from the trial balance, financial statements are prepared.  Hence, ledger is called the principal book of account.

Purpose of Ledger 

1. Provides quick information about all business transactions.
2. Ensures proper control by maintaining separate accounts for each transaction type.
3. Helps in preparing the Trial Balance to verify accuracy of records.
4. Aids in preparing Financial Statements based on ledger balances.

Features of ledgers

1. Ledger is a master record of all the accounts of business
2. It is prepared from journal
3. Ledger accounts show the current balance in all account
4. Trial balance shows the current balance in all account
5. Ledger accounts summarized the effect of transactions upon assets, liabilities, capital, income and expenditure.

Ledger Utility

1. It provides complete information of a particular account. For example – Cash account, Bank account etc.
2. Information of income and expense
3. Preparation of trial balance
4. Helpful in preparing final accounts

Importance of Ledger 

1. Shows business results: Provides complete details of revenues and expenses to determine profit or loss.
2. Reveals asset values: Records each asset separately, showing its book value anytime.
3. Assists management: Helps in budgeting and performance evaluation.
4. Indicates financial position: Shows assets and liabilities to assess business health.
5. Gives instant information: Quickly reveals amounts payable and receivable.

Types of Ledgers

In large scale business organisations, the number of accounts may run into hundreds. It is not always possible for a businessman to accommodate all these accounts in one ledger. They, therefore, maintain more than one ledger.

1. Assets Ledger: It contains accounts relating to assets only e.g. Machinery account, Building account, Furniture account, etc.
2. Liabilities Ledger: It contains the accounts of various liabilities e.g. Capital (Owner or partner), Loan account, Bank overdraft, etc.
3. Revenue Ledger: It contains the revenue accounts e.g. Sales account, Commission earned account, Rent received account, interest received account, etc.
4. Expenses Ledger: It contains the various accounts of expenses incurred, e.g. Wages account, Rent paid account, Electricity charges account, etc.
5. Debtors Ledger: It contains the accounts of the individual trade debtors of the business. Individuals, firms and institutions to whom goods and services are sold on credit by business become the ‘trade debtors’ of the business.
6. Creditors Ledger: It contains the accounts of the individual trade Creditors of the business. Individuals, firms and institutions from whom a business purchases goods and services on credit are called ‘trade creditors’ of the business.
7. General Ledger: It contains all those accounts which are not covered under any of the above types of ledgers. For example, Landlord A/c, Prepaid insurance A/c etc.

Format of Ledger Account

Example: Wages Account

Dr.				Cr.
Date	Particulars	J.F.	Amount (₹)	Date	Particulars	J.F.	Amount (₹)

Notes:

1. Date: Date of the transaction.
2. Particulars: Name of the other account involved in the transaction.
3. J.F. (Journal Folio): Page number of the journal entry.
4. Amount (₹): Amount of the transaction.

The journal does not provide details like total cash, purchases, expenses, income, or balances with creditors and debtors. To obtain such classified information, a trader must prepare ledger accounts for each type of transaction. A ledger has two sides — debit (left) and credit (right)  each with columns for date, particulars, journal folio, and amount. On the debit side, the account receiving the benefit is recorded with the word “To”, while on the credit side, the account giving the benefit is recorded with the word “By”.

Posting the Entries 

The process of transferring the transaction written in the journal to a ledger is called Posting. In others words, it means transferring the debit and credit items from the journal to their respective accounts in the ledger.

Ledger Posting

Transferring the entries from the journal or a subsidiary book to the ledger is known as posting. Posting the ledger from journal is easy as the transactions in the journal are already classified into debit and credit. However, the following points must be noted while posting the ledger. 

1. For the same person or expense only one account should be opened. 
2. Cash and credit sales should be posted to Sales Account and cash and credit purchases to Purchase Account. 
3. The word Debit as Dr. and Credit as Cr. should not be omitted. 
4. Date and folio columns should not be left blank.

Balancing of Ledger Accounts 

At periodic intervals, the debit and credit sides of individual ledger accounts are totalled and balance of each account indicated. If the total of the debit side of any account is more than the credit side, there will be a debit balance and, if the credit side is more than the debit side there will be credit balance. 

With the help of the illustration which we took for recording journal entries, let us see how the ledger postings and balancing will be done.

Mechanics of posting 

31st December 2024, salary is paid through cheque amount 10,000

Date	Particulars	L.F.	Amount (Dr)	Amount (Cr)
31-12-2025	Salaries Account	55	10,000
	To Bank Account	56		10,000
	(Being the salaries paid)

Ledger of Salaries Account

Dr.				Cr.
Date	Particulars	J.F.	Amount (₹)	Date	Particulars	J.F.	Amount (₹)
31-12-25	To Bank A/c		10,000

Ledger of Salaries Account

Dr.				Cr.
Date	Particulars	J.F.	Amount (₹)	Date	Particulars	J.F.	Amount (₹)
				31-12-25	By Salaries A/c		10,000

Posting of compound entry

On 1st April 2025, Sandeep paid to Sonu by cheque 9,500 in full settlement of 10,000. Pass journal entry and post it into ledger account in the books of Sandeep.

Journal 

Date	Particulars	L.F.	Amount (Dr)	Amount (Cr)
01/04/25	Sonu Account                         Dr.	27	10,000
	To Bank Account	19		9,500
	To Discount Received Account	13		500
	(being the cheque issued to sonu for full settlement)

Ledger of Sohan Account

Dr.				Cr.
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
01-04-25	To Bank A/c	81	9500
	To Discount Received A/c	81	500

Ledger of Bank Account

Dr.				Cr.
Date	Particulars	J.F.	Amount (₹)	Date	Particulars	J.F.	Amount (₹)
				01-04-25	By Sohan A/c		9,500

Ledger of Discount Received Account

Dr.				Cr.
Date	Particulars	J.F.	Amount (₹)	Date	Particulars	J.F.	Amount (₹)
				01-04-25	By Sohan A/c		500

Use of words ‘To’ and ‘By’

It is customary to use the word

1. ‘To’ with accounts which appear on debit side of ledger account
2. ‘By’ is used with account which appear on credit side ledger account
3. The words ‘To’ and ‘By’ do not have any specific meaning
4. Modern accountant therefore does not use these words.

Balancing of ledger account

Balancing an account means that two sides of an account are totalled and the difference in total of two sides are written on side whose total is smaller. So that (Dr = Cr)

For example – 

1. If the total of credit side > total of debit side
2. Then the difference of amount will be recorded as to balance c/d on debit side (such that total debit = total credit)
3. If the total of debit side > total of credit side
4. Then the difference of amount will be recorded as By balance c/d on credit side.

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

Example 

Ledger of Cash Account

Dr.				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 Sandeep		1,500	28th April	By Sohan		2,150
30th April	To Sales A/c		8,000	30th April	By Rent A/c		500
				30th April	By Salaries A/c		3,000
				30th April	By Balance c/d		29,850
			1,10,500				1,10,500
1st May	To Balance b/d		29,850

Ledger of Bank Account

Dr.				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 b/d		69,000

Advantages of Ledger 

1. Complete Information: All transactions of an account are recorded in one place, showing their overall effect at a glance.
2. Arithmetical Accuracy: Helps prepare a trial balance to check the accuracy of accounts.
3. Business Results: Assists in preparing final accounts to determine profit/loss and financial position.
4. Accounting Information: Provides summarized data for analysis and decision-making.

FAQ's

Can you explain the difference between General Ledger, Sub-ledger, and Trial Balance?

The General Ledger (GL) is the main book of accounts containing all transactions. Sub-ledgers (like Accounts Payable, Accounts Receivable, Fixed Assets) record detailed transactions for specific areas, which are then summarized into the GL. A Trial Balance is a statement that lists all GL balances at a specific date, used to check the accuracy of postings before preparing financial statements.

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