2. Meaning
After entering of all transactions in journal ,the trader want important
information about the business. such as purchase, sales, debtor,
creditors, cash, stock, etc. for receiving these information transactions
entered in journal are classified. Hence, transactions related to one
account are written separately in another book. The book in which these
transactions are entered , is called ledger. In short, a ledger is a book
which contains all accounts of the business enterprise whether Personal,
Real & Nominal.
L.C. Cropper “ The book which contains a classified & permanent record
of all the transactions of a business is called the Ledger”
3. Need/Importance
We want to know different information through accounting, for
example.
1. How much goods have been purchased during a certain period?
2. How much goods have been sold during a certain period?
3. How much amount to be paid to other traders?
4. How much amount to be received from different customer?
5. Expenditure on different items.
6. Income from different items.
7. Changes in assets, liabilities and capital.
4. Advantages
1. Knowledge of different results.
2. Helpful in preparation of trial balance.
3. Helpful in preparation of final account.
4. Overcoming the limitations of journal.
5. Knowledge of financial position.
5. Proforma of ledger
Each ledger account is divided into two equal parts. The left-hand side is
known as the debit side & the right-hand side as the credit side. As an
account is in ‘T’ shape, therefore sometimes it is called ‘T’ account. The
format is as follows:
Dr. Name of Account
Cr.
---------------------------------------------------------------------------------------
Date| Particulars | J.F. | Amount || Date | Particulars | J.F. | Amount
---------------------------------------------------------------------------------------
6. Rules of Posting
1. All transactions relating to an account should be entered at one place. In other
words, two separate accounts should not be opened for posting transactions relating
to the same account.
2. The word ‘To’ is used before the accounts which appear on the debit side of an
account & the word ‘By’ is used before the account which is appear on the credit side
of an account.
3. If an account has been debited in the Journal entry, the posting in the ledger should
also be made on the debit side of such account. In particulars column, the name of
the other account which has been credited in the journal entry should be written for
reference.
4. If an account has been credited in the journal entry do exactly what you did in step 3
For e.g. On 1st
April 2014, sold goods for cash Rs. 2000. Pass journal entry & post it into
ledger:
2014
1st
April Cash A/c Dr. 2000
To Sales 2000
7. Closing & Balancing of accounts
Closing of personal accounts –
From the balancing of these accounts we can ascertain as to how much
amount is owing from each individual customer & how much amount is
owed to each individual creditor. If a personal account shows a debit
balance, it indicates the amount owing from him. On the contrary, if a
personal account shows a credit balance, it indicated the amount owing
to him.
8. Closing of real accounts
Real accounts includes the accounts of cash in hand & the accounts of
all other assets such as Land, Building, Furniture, Investments etc.
Accounts related to goods are also included in real accounts. Methods
of closing cash account & the accounts of all other assets is the same as
that of personal accounts. When balanced these will always show debit
balances.
Accounts relating to goods such as purchases a/c, sales a/c, purchase
return a/c, sales return a/c & stock a/c although real accounts by nature
are not balanced. These accounts closed by transferring them to trading
account at the end of the year.
9. Significance of various balances relating to accounts
1 – Debit balance of a personal account indicates the amount which is owing to
the firm by a person. In other words, he is the debtor of the firm.
2 – Credit balance of a personal account indicates the amount which is owing to
the person concerned. In other words, he is the creditor of the firm.
3 – Bank account is a personal account & not a real account because bank
account is the account of some banking company which is an artificial person. If
the bank account shows a debit balance it would indicate the balance of cash at
bank, on the other hand, if it shows a credit balance, it would indicate an
overdraft balance.
4 – Debit balance of a real account shows the value of an asset in the books of
the firm.
5 – Usually real account do not show credit balances
6 – Debit balance of a nominal a/c indicate loss or expense
7 – Credit balance of a nominal a/c indicate gain or income
10. Significance of various balances relating to accounts
1 – Debit balance of a personal account indicates the amount which is owing to
the firm by a person. In other words, he is the debtor of the firm.
2 – Credit balance of a personal account indicates the amount which is owing to
the person concerned. In other words, he is the creditor of the firm.
3 – Bank account is a personal account & not a real account because bank
account is the account of some banking company which is an artificial person. If
the bank account shows a debit balance it would indicate the balance of cash at
bank, on the other hand, if it shows a credit balance, it would indicate an
overdraft balance.
4 – Debit balance of a real account shows the value of an asset in the books of
the firm.
5 – Usually real account do not show credit balances
6 – Debit balance of a nominal a/c indicate loss or expense
7 – Credit balance of a nominal a/c indicate gain or income
