Ledger

The journal cannot fulfill all the requirements of accounting. It registers all the transactions in the chronological order in the same place. It is the basis of preparing ledger accounts. It mixes up the records of different transactions due to which the position of a particular account cannot be reported. It fails to report the result of the transactions relating to a particular account during a period. So, the ledger was introduced.

The ledger is the second step of accounting. It is the principal book of accounts. It contains all the accounts appeared in the journal or subsidiary books. It makes a classified record of all the transactions in summarized form. It is the final destination of all the accounts created in the primary books. It is the final source of all accounting information.

The following are the main definitions of ledger:

"Ledger is a book of accounts which contains in a suitably classified form, the final and permanent record of trader's transactions." - V. J. Vickery

"A ledger is the most important book of accounts and is the final destination of the entries made in the subsidiary." -W. Pickles

From the given definition, we can say that a ledger is a bound or register book which contain a large number of the account. It is the principal book of the account which make a final record of all the transaction in a classified manner.

Ledger Account

A ledger account is simply a statement of information on a particular head. It is the summary records of all the transactions relating to a particular person or property or income or expenses. It is the details of the amount debited and credited to a particular person or income or expenses during a given period. The ledger account contains two sides which are debit and credit. Its left-hand side is called debit side and the right-hand side is called credit side. It shows the benefits on one side and sacrifices on another side for a given period. It is balanced and closed at the end of a given period to know the net effect or result.

Objectives

The main objectives of ledger are as follows:

• To make a permanent record of all the financial transactions in a classified manner.
• To supply detailed information on any account for a given period easily and immediately.
• To know the net effect of all the transactions on a particular account at a given point of time. The net effect is the difference between total debit and credit of the account concerned.
• To help to prepare trial balance in order to examine the arithmetical accuracy of the books of accounts.
• To serve as the principal account for obtaining all accounting information at least cost and time.

Importance and utility of ledger

The following are the important utilities of ledger accounts:

• It keeps a permanent record of all financial transactions in a classified manner.
• It shows detailed financial information of a business regarding debtors and creditors, assets, incomes and expenses.
• It helps to prepare a trial balance in order to check the arithmetical accuracy of the recording of the financial transactions of the business.
• It helps to prepare profit and loss account so as to ascertain the profit or loss of the business.
• It helps to prepare the balance sheet with a view to show the financial position of the business.

Differences between Journal and Ledger

Things to remember

• The ledger is the second step of accounting.
• Ledger account is the summary records of all the transactions relating to a particular person or property or income or expenses.
• The ledger account contains two sides which are debit and credit. 
• The process of transferring transactions from journal to the ledger is called ledger posting.

• It includes every relationship which established among the people.
• There can be more than one community in a society. Community smaller than society.
• It is a network of social relationships which cannot see or touched.
• common interests and common objectives are not necessary for society.

Questions and Answers

Quiz