Note on Ledger Account

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Meaning and concept of ledger

The final destination of all entries made in the journal is the ledger as they are all each transferred to the ledger. It is the most important book under the double-entry system. Ledger is also known as " Permanent Book of all Record ", which includes all accounts relating to the financial transactions of a business. Therefore, it is alsoknown asthe book of accounts. An account which are contained in the ledger book is called ledger account. A ledger account is a statement shaped liked an English alphabet 'T' that systematically contains all financial transactions relating to a particular person or a certain thing for a certain period of time. Ledger account provides financial information like how much a particular person owes to or from the business, what is the value of particular asset the business possesses at a point in time, or what is the amount of particular head of expense or income business has incurred or earned during a particular period.

Some of the writers defined the meaning of ledger as following:

According to V.J Vickry, "Ledger is known as the book of account which contents in a classified form, the final and permanent record of traders transactions."

According to William Pickles," ledger is one of the mostimportant book of account and is the final destination of the entries made in a subsidiary books."

According to O.P. Gupta, "Ledger is that principal book of account in which all the transactions find their place in the shape of account in a classified form. This book supplies all the information regarding a working of a business."

From the above definitions the "Ledger" contains the details of all classified information of financial transactions of the business. It is also called the principal or main book of accounts. It collects records and provides the financial information of the business in a classified manner so as to ascertain the profit and loss and financial position of the business at a certain point of time.

Objectives of ledger

The following are the main objectives of ledger accounts:

  1. To Provide Classified Financial Information: The ledger is a permanent book of record which includes the number of accounts of the different subjects. Its purpose is to provide classified financial information about the person subjects, its assets and the person expenses or the persons income.
  2. To Check on Arithmetical Accuracy: The fundamental double-entry book keeping principle provides that the credit is always equal to debit or vice verse. We all know that the ledger account is prepared under the double-entry book keeping system, as it helps to prepare the trial balance that provides a check on the arithmetical accuracy of the recording transactions in the books of accounts.
  3. To Help Know the actual Profit Or Loss: The ledger is a book of accounts that relates to all financial transaction of a business. It contains the accounts of all expenses, losses, incomes and profits. Therefore, it provides the help to prepare the profit and loss account of the business so as to know the actual profit earned or loss suffered during a specified period.
  4. To Help Reveal the Financial Position: The ledger also contains the accounts of the financial transactions relating to capital, all liabilities and assets of the business. With the help of the balances of these accounts and profit and loss of the business, a balance sheet may be prepared to show its financial position at a certain point in time.

Difference between Journal and ledger

Journal

Ledger

Journal is the book of prime entry where the transactions are first recorded and then the ledger

Compared to journal, the ledger is recorded after the journal.

Journalizing is the process of recording entries in the book of prime entry.

The process of recording entries in the ledger is called posting.

The final position of balance of a particular account cannot be found.

The final position or balance of a particular account can be determined at a glance.

Entries are transferred to the ledger

From the ledger, the trial balance is drawn and then the final account are prepared.

Transactions relating to an individual or property or fixed asset or expenses are spread over.

Transactions relating to a particular account are posted in a particular page.

Normally outsiders do not rely upon these books

Outsiders, tax authorities rely other ledger

The page number of journal are enter in journal

Folio column

The page number ledger are entred in ledger folio column

Preparation of T shaped ledger

Date

Particulars

J.F

Amount

Date

Particulars

JF

Amount

To…

Total

Total

A brief explanation of each column of the ledger account can be made under

Date: In this column, date of transaction should be recorded.

Particulars: In this column, the name of reference account i.e. Dr. making account (Name of the opposite account or second aspect of transaction) should be recorded.

J.F: In this column, Journal Voucher number of the transactions (if any) to be recorded in practice. In general, this column should be kept empty.

Amount: In this column, the amount of certain (given) account should be recorded in figurative term i.e. term of Digit.

Rules and principles of posting

  1. At the time of preparation of ledger, a separate account should be maintained on the basis of Journal.
  2. In the ledger, always mention Dr. and Cr. in left and right side respectively.
  3. Don't write the name of that account on the debit or credit side of that account.
  4. All posting on debit side start with "To", and all postings on credit side start with "By".
  5. Items of Debit from the journal should be kept in credit side of ledger and items of Credit from the Journal should be kept in Debit side of Ledger.
  6. After posting all items in ledger, make the total of amount column of debit and credit side of accounts.
  7. If total debits arc more than total credits, the balance is put on the credit side with the name balance c/d(carried down ) and vice versa.
  8. Consequently, such balance amount will be carried forward in next side & next day with the name balance b/d (brought down)

Posting into ledger without journal entries

Example 1

Mr shrestha business transaction reveled the following .

  • Jestha 4, sold goods to Mr Pradhan Rs 30000
  • Jestha 10, cash paid by Mr Pradhan Rs 10000
  • Jestha 10, discount allowed to Mr Pradhan Rs 1000
  • Jestha 15, Retun from Mr Pradhan Rs 3000

Required : Mr pradhan a/c in the book of Mr Shrestha without journal entries.

In the books of Mr Shrestha Mr pradhan a/c

Dr Cr

Date

Particulars

J.F

Amount

Date

Particulars

Jf

Amount

Jestha 4

To sales a/c

30000

Jestha 10

Jestha 10

Jestha 15

Jestha 30

By cash a/c

By Discount a/c

By sales return a/c

By balance c/d

10000

1000

3000

16000

30000

30000

16000

Posting into ledger with journal entries

Example 1

  • Sold goods to Hari Rs 15000
  • Furniture costing Rs 5000 were sold for Rs 3500
  • Received cash for Rs 14000 from Hari in full settlement of his account
  • Received loan of Rs 8000 from his bank.

Required : Journal entries and Hari account

Journal Entries

Date

Particulars

L.F

Debit R.s

Credit R.s

a

Hari a/c …………………………………Dr

To sales a/c

(Being sold goods to Hari)

15000

15000

b

Cash a/c…………………………………..Dr

Loss on sale of furniture a/c………Dr

To furniture a/c

(Being furniture sold at loss)

3500

1500

5000

c

Cash a/c……………………………………..Dr

Discount a/c……………………………….Dr

T Hari a/c

(Being cash received from Hari allowed him discount)

14000

1000

15000

d

Cash a/c ………………………………………Dr

To bank loan a/c

(Being loan received from bank)

8000

8000

Dr Hari Account Cr

Date

Particulars

J.F

Amount

Date

Particulars

J.F

Amount

a

To sales a/c

15000

15000

C

c

By cash a/c

By discount a/c

14000

1000

15000

Closing and Blancing Ledger a/c

How to Balance the Ledger Account:

When all the transactions for a preparation of ledger have been recorded, it will be very necessary or it is must to find out the balance on the ledger account:

(1) First we should total both sides of the T account that we have prepared and find the larger total.

(2) Now, we should put the larger total in the total box on the debit and credit side that we have prepared.

(3)Insert a balancing figure to the side of the T account which does not currently add up to the amount in the total box. We can call this balancing figure ‘balance c/f’ (carried forward) or ‘balance c/d’ (carried down).

(4)Carry the balance down diagonally and call it ‘balance b/f’ (brought forward) or ‘balance b/d’ (brought down).

How to close the ledger account:

At the end of the year, the ledger account must be closed by recording all the preparation of the transactions that are needed or must for the preparation of next accounting period. for example Asests and liabilities at the end of the ledger account which areneeded for the transaction for nextr accounting period

(jogindar goet, bhesh raj benjade, 2012)

Bibliography

jogindar goet, bhesh raj benjade. (2012). Principal of accounting. kalimati , kathmandu: Dreamland publication.

ledger is an account or a book account which contents are suitable classified from, the final permament recird of trade transaction.

Need and inportance of Ledger

  • Transactions relating to a particular person, item or heading of expenditure or meaner are grouped in the concerned account at one place.
  • When each account is periodically balanced it reflects the net position of that account.
  • Ledger is the stepping stone for preparing Trial Balance - which tests the arithmetical accuracy of the accounting books.

 

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