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Ledger

—

by

Afzalur
Accounting for Managers Introduction to Accounting Ledger
The study of this chapter would enable you to understand:
Meaning of Ledger                                    
Form of a Ledger
Mechanics of Posting                                
Balancing of Ledger Accounts
 

LEDGER

Meaning

Earlier, we discussed the term Account. In an account,transactions of one nature are posted or summarised. All the accounts put together constitute a ‘Ledger’. A Ledger may be defined as a “book or register which contains, in a summarised and classified form, a permanent record of all transactions.” It is themost important book of accounts, since the trial balance is drawn from it and from the trial balance, financial statements are prepared. Hence, the Ledger is called the Principal Book.

Features

  • The ledger is a master record of all the accounts of a business firm.
  • It is prepared from Journal.

  (iii)     Ledger Accounts show the current balance in all accounts.

 (iv)     Trial Balance and final accounts are prepared from Ledger Accounts.

(v)      Ledger Accounts summarise the effect of transactions upon assets, liability, capital,   income and expenditure.

Advantages or Utility

A Ledger is the principal book of account which contains allinformation regarding business transactions. It is difficult to prepare the final accounts in the absence of a Ledger as it provides necessary information regarding various accounts. Personal accounts in a Ledger show how much money the firm owes to its creditors and the amounts it has to recover from its debtors. The real accounts show the values of properties and also the value of stock. Nominal accounts reflect the sources of income and also the amount spent on various items. The financial position of the business can be ascertained easily at any time with the help of a Ledger.

Form of a Ledger Account.

Name of the Account, e.g., Wages Account
DateParticularsJ.F.AmountDateParticularsJ.F.Amount

Standard Format

DateParticularsJ.F.DebitCreditBalance

Posting

The process of transferring the information contained in a Journal to a Ledger is called posting. In other words, the process of transferring of the debits and credits from the Journal to the Ledger Accounts is called posting. Posting from Journal to the Ledger Accounts is necessary in order to know how transactions have changed the account balances.

The Mechanics of Posting

The following procedure is followed for posting the debit and credit aspect of the transaction recorded in a Journal:

1. Posting of Account debited in a Journal entry. The steps to be followed are:

Step 1. Open a separate account in the ledger for each class of transaction. For example a separate account be opened for purchases, sales, salaries etc.

Step 2.     Identify in the Ledger the account to be debited.

Step 3.     Enter the date of the transaction in the ‘Date’ column on the debit side of the account.

Step 4.   Write the name of the account which has been credited in the respective entry    in the ‘Particulars Column’ on the debit side of the account as ‘To (name of account credited)’.

Step 5 .    Record the page number of the Journal where the entry exists in the Journal   Folio (J.F.) column.

Step 6.     Enter the relevant amount in the ‘Amount’ column on the debit side.

2. Posting an Account credited in a Journal entry. The steps to be followed are:

Step 1.     Identify in the Ledger the account to be credited.

Step 2. Enter the date of the transaction in the ‘Date’ column on the credit side.

Step 3. Write the name of the account which has been debited in the respective entry in the ‘Particulars Column’ on the credit side of the account as ‘By (name of account debited)’.

Step 4. Record the page number of the Journal where the entry exists in the Journal folio (J.F.) column.

Step 5. Enter the relevant amount in the ‘Amount’ column on the credit side. Consider the following entry to illustrate the above:

DateParticularsAmount (Rs.)Amount (Rs.)
March 6Furniture A/c … Dr.1,200
To Modern Furnishers A/c1,200

An amount of Rs. 1,200 will be debited to the Furniture Account and credited to Modern Furnishers. The manner will be: in the Furniture Account in the Particulars Column we shall write ‘To Modern Furnishers’. In the account of Modern Furnishers will be written: ‘By Furniture Account’. The two accounts will, thus, appear as under:

Furniture Account

DateParticularsJ.F.Rs.DateParticularsJ.F.Rs.
March 6To Modern Furnishers571,200

Modern Furniture Account

DateParticularsJ.F.Rs.DateParticularsJ.F.Rs.
March 6By Furniture A/c1,200

Process of Journalizing.

Journal and Ledger
JOURNAL
Date Particulars L.F. Dr. Amount Rs. Cr. Amount Rs.
2009 May 5 Cash A/c …Dr. 600
To Sales A/c 600
(Being sale of goods for cash vide Cash Memo No. …)
2009 May 8 Mohan …Dr. 425
To Cash A/c 410
To Discount Received A/c 15
(Being cash paid to and discount allowed by Mohan)
2009 May 10 Purchases A/c …Dr. 800
To Dutt 800
(Being goods purchased from Dutt on credit)
Ledger
Dr. Cr.
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2009 May 5 To Sales A/c 600 2009 May 8 By Mohan 410
Dr. Cr.
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2009 May 5 By Cash A/c 600
Dr. Cr.
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2009 May 10 To Dutt 800
Dr. Cr.
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2009 May 8 By Mohan 15
Dr. Cr.
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2009 May 8 To Cash A/c 410
2009 May 8 To Discount Received A/c 15
Dr. Cr.
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2009 May 10 By Purchases A/c 800

Explanation Drawing

Posting as Opening Entry

As discussed earlier, all assets will show a debit balance. Such accounts will be opened and the relevant amount will be written on the debit side as ‘To Balance brought down (b/d)’. On the contrary, the account of liabilities show credit balance. An account for each liability will be opened and the relevant amount will be written on the credit side as ‘Balance brought down’.

Illustration 21. Pass the Opening Entry on 1st April, 2010 on the basis of thefollowing information taken from the books of Mr. Ashok. Also post the opening entry:

 Rs.
Cash in Hand20,000
Sundry Debtors60,000
Stock of Goods40,000
Plant50,000
Land and Building1,00,000
Sundry Creditors1,00,000

Solution:

Journal and Ledger Entries
JOURNAL
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
2010 April 1 Cash A/c …Dr. 20,000
Sundry Debtors A/c …Dr. 60,000
Stock A/c …Dr. 40,000
Plant A/c …Dr. 50,000
Land and Building A/c …Dr. 1,00,000
To Sundry Creditors A/c 1,00,000
To Capital A/c (Note) 1,70,000
Note: The excess of assets over liabilities is the proprietor’s capital and is credited to his Capital Account.
Ledger of Ashok
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2010 April 1 To Balance b/d 20,000
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2010 April 1 To Balance b/d 60,000
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2010 April 1 To Balance b/d 40,000
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2010 April 1 To Balance b/d 50,000
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2010 April 1 To Balance b/d 1,00,000
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2010 April 1 By Balance b/d 1,00,000
Date Particulars J.F. Amount Rs. Date Particulars J.F. Amount Rs.
2010 April 1 By Balance b/d 1,70,000

Use of the words ‘To’ and ‘By’. It is customary to use the word ‘To’ with accountswhich appear on the debit side of a Ledger Account. Similarly, the word ‘By’ is used with accounts which appear on the credit side of a Ledger Account. The words ‘To’ and ‘By’ do not have any specific meaning. Modern accountants therefore, ignore the use of these words.

Balancing of Accounts

After posting the transactions, accounts are balanced every year or after a certain period. Balancing an account means that the two sides of account are totalled and the difference in total of the two sides is written on the side whose total is short. For example, if the total of the credit side is more than the debit side of any account the difference of amount will be recorded as Balance c/d on the debit side and vice versa on the credit side. If the total of the debit side of any account is greater that account will reveal a debit balance and if total of credit side of any account is greater it will show a credit balance. The debit balance is then written on the debit side as ‘To balance brought down’ or ‘To Balance b/d’, which is the opening balance for the new period. The credit balance is then written on the credit side as ‘By Balance b/d brought down’, or ‘By Balance b/d’. This is the opening balance for the new period. The total of the debit and credit sides of some accounts may be equal, those accounts will not show any balance. The concept of balancing is illustrated in the following diagram:

Process of Balancing Ledger Accounts
PROCESS OF BALANCING LEDGER ACCOUNTS
Total both the sides of a Ledger Account
Find out the difference
If the Debit Side Total is more than the Credit Side Total If the Credit Side Total is more than the Debit Side Total
Write the Difference on the Credit Side as ‘By Balance c/d’ Write the Difference on the Debit Side as ‘To Balance c/d’
Make the total of the Debit Side equal to the total of the Credit Side
Draw a double line after the totals
Bring forward the balance on the next date
If Debit Balance If Credit Balance
Write on the Debit Side as ‘To Balance b/d’ Write on the Credit Side as ‘By Balance b/d’

Types of Accounts that are balanced. Normally, Personal Accounts and Real Accountsare balanced. These balances are written in the Balance Sheet. Nominal Accounts are not balanced but are closed by transfer to Trading or Profit and Loss Account.

Question 1: (from Journal)

XYZ Traders began its operations on August 1, 2024. The following transactions occurred during the first week of business. Prepare the Journal entries for each transaction and provide a narration for each entry.

  1. August 1, 2024: Rahul invested Rs. 800,000 in cash to start XYZ Traders.
  2. August 2, 2024: Purchased furniture worth Rs. 50,000 from M/s Furniture Mart on credit.
  3. August 3, 2024: Bought goods for cash Rs. 100,000.
  4. August 4, 2024: Sold goods on credit to Sunil Enterprises for Rs. 60,000.
  5. August 5, 2024: Paid Rs. 30,000 cash to M/s Furniture Mart as partial payment.
  6. August 6, 2024: Received Rs. 40,000 in cash from Sunil Enterprises.
  7. August 7, 2024: Rahul withdrew Rs. 5,000 for personal use.
  8. August 7, 2024: Paid office rent Rs. 10,000 in cash.
  9. August 7, 2024: Purchased a computer for office use for Rs. 40,000, paying Rs. 20,000 in cash and the rest on credit.
  10. August 7, 2024: Deposited Rs. 50,000 into the bank account for business purposes.
XYZ Traders – Ledger Entries
XYZ Traders – Ledger Accounts
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 1, 2024 To Capital A/c 800,000
August 3, 2024 To Purchases A/c 100,000
August 5, 2024 To Furniture Mart A/c 30,000
August 6, 2024 To Sunil Enterprises 40,000
August 7, 2024 To Bank A/c 50,000
August 7, 2024 To Drawings A/c 5,000
August 7, 2024 To Rent A/c 10,000 August 7, 2024 By Bank A/c 50,000
August 7, 2024 To Computer A/c 20,000 August 7, 2024 By Drawings A/c 5,000
August 7, 2024 By Rent A/c 10,000
August 7, 2024 By Computer A/c 20,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 1, 2024 By Cash A/c 800,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 2, 2024 To Furniture Mart A/c 50,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 5, 2024 By Cash A/c 30,000 August 2, 2024 By Furniture A/c 50,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 3, 2024 To Cash A/c 100,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 4, 2024 To Sunil Enterprises 60,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 6, 2024 By Cash A/c 40,000 August 4, 2024 By Sales A/c 60,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 7, 2024 By Cash A/c 5,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 7, 2024 To Cash A/c 10,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 7, 2024 To Cash A/c 20,000 August 7, 2024 By Creditors A/c 20,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
August 7, 2024 To Cash A/c 50,000

Question 2: Comprehensive Transaction Recording (from Journal)

XYZ Limited conducted the following transactions during the month of July 2024. Prepare the necessary journal entries and provide narrations for each entry:

  1. July 1, 2024: The business owner, Mr. Sharma, invested Rs. 1,200,000 in cash.
  2. July 3, 2024: Purchased inventory worth Rs. 300,000 on credit from ABC Suppliers.
  3. July 5, 2024: Sold goods costing Rs. 50,000 to DEF Traders for Rs. 75,000 on credit.
  4. July 7, 2024: Paid salaries to employees amounting to Rs. 20,000 in cash.
  5. July 10, 2024: Received a bank loan of Rs. 500,000.
  6. July 12, 2024: Purchased office equipment for Rs. 150,000, paying Rs. 100,000 in cash and the balance on credit.
  7. July 15, 2024: Returned defective inventory worth Rs. 20,000 to ABC Suppliers.
  8. July 18, 2024: Received Rs. 40,000 from DEF Traders in partial settlement of their account.
  9. July 20, 2024: Paid Rs. 100,000 to ABC Suppliers, settling the remaining balance.
  10. July 25, 2024: Paid electricity bill of Rs. 5,000 and water bill of Rs. 2,000 in cash.
XYZ Limited – Ledger Entries
XYZ Limited – Ledger Accounts
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 1, 2024 To Capital A/c 1,200,000 July 7, 2024 By Salaries A/c 20,000
July 10, 2024 To Bank Loan A/c 500,000 July 12, 2024 By Office Equipment A/c 100,000
July 18, 2024 To DEF Traders 40,000 July 20, 2024 By ABC Suppliers A/c 100,000
July 25, 2024 To Capital A/c 5000 July 25, 2024 By Water Bill 2000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 1, 2024 By Cash A/c 1,200,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 3, 2024 To Purchases A/c 300,000 July 20, 2024 By Cash A/c 100,000
July 15, 2024 To Purchase Returns A/c 20,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 3, 2024 To ABC Suppliers 300,000 July 15, 2024 By Purchase Returns 20,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 18, 2024 By Cash A/c 40,000 July 5, 2024 By Sales A/c 75,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 5, 2024 To DEF Traders 75,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 7, 2024 To Cash A/c 20,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 10, 2024 By Cash A/c 500,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 12, 2024 To Cash A/c 100,000 July 12, 2024 By ABC Suppliers A/c 50,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 15, 2024 By ABC Suppliers A/c 20,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 25, 2024 To Cash A/c 5,000
Date Particulars J.F. Amount (Rs.) Date Particulars J.F. Amount (Rs.)
July 25, 2024 To Cash A/c 2,000

Question 3: Complex Transactions with Discounts (from Journal)

ABC Industries conducted the following transactions in August 2024. Prepare journal entries for each transaction, including compound entries where applicable:

  1. August 1, 2024: The owner, Ms. Verma, invested Rs. 500,000 in cash and Rs. 200,000 in machinery into the business.
  2. August 2, 2024: Purchased raw materials for Rs. 150,000 from XYZ Suppliers, availing a trade discount of 10%.
  3. August 3, 2024: Sold products worth Rs. 100,000 to PQR Ltd., offering a cash discount of 5% for payment within 10 days. PQR Ltd. paid on August 10.
  4. August 5, 2024: Received a cheque for Rs. 80,000 from RST Co. for an outstanding invoice, deposited on August 6.
  5. August 8, 2024: Paid rent of Rs. 15,000 and utilities of Rs. 5,000 via bank transfer.
  6. August 12, 2024: Returned defective raw materials worth Rs. 10,000 to XYZ Suppliers.
  7. August 15, 2024: Purchased office supplies for Rs. 10,000 in cash.
  8. August 18, 2024: Paid salaries of Rs. 30,000 and bonuses of Rs. 5,000 in cash.
  9. August 20, 2024: Ms. Verma withdrew Rs. 20,000 in cash for personal use.
  10. August 25, 2024: Received Rs. 5,000 as commission income credited directly to the bank account.

ABC Industries – Ledger Accounts

Dr. CASH ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 1, 2024To Capital A/c500,000August 8, 2024By Rent A/c15,000
August 5, 2024To RST Co.80,000August 8, 2024By Utilities A/c5,000
August 3, 2024To Sales A/c95,000August 15, 2024By Office Supplies A/c10,000
August 18, 2024August 18, 2024By Salaries A/c30,000
August 18, 2024By Bonuses A/c5,000
August 20, 2024To Drawings A/c20,000
August 25, 2024To Commission Income A/c5,000August 31, 2024By Balance c/d590,000
Total700,000Total700,000

Dr. CAPITAL ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 31, 2024To Balance c/d500,000August 1, 2024By Cash A/c500,000
Total500,000Total500,000

Dr. MACHINERY ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 1, 2024To Capital A/c200,000August 31, 2024By Balance c/d200,000
 Total 200,000 Total 200,000

Dr. XYZ SUPPLIERS ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 2, 2024To Purchases A/c135,000August 12, 2024By Purchase Returns A/c10,000
    August 31, 2024By Balance c/d 125,000
Total135,000 Total 135,000

Dr. PURCHASES ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 2, 2024To XYZ Suppliers135,000August 12, 2024By Purchase Returns10,000
 August 31, 2024By Balance c/d125,000
Total135,000Total135,000

Dr. SALES ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 31, 2024To Balance c/d95,000August 3, 2024By PQR Ltd.95,000
Total 95,000 Total    95,000

Dr. RST CO. ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 5, 2024To Cash A/c80,000August 31, 2024Balance c/d80,000
Total80,000Total 80,000

Dr. RENT ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 8, 2024To Cash A/c15,000August 31, 2024By Balance c/d15,000
   15,000   15,000

Dr. UTILITIES ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 8, 2024To Cash A/c5,000August 31, 2024By Balance c/d5,000
Total5,000Total5,000

Dr. PURCHASE RETURNS ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 12, 2024To XYZ Suppliers A/c10,000August 31, 2024By Balance c/d10,000
Total10,000Total10,000

Dr. OFFICE SUPPLIES ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 15, 2024To Cash A/c10,000August 31, 2024By Balance c/d10,000
Total10,000Total10,000

Dr. SALARIES ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 18, 2024To Cash A/c30,000August 31, 2024By Balance c/d30,000
Total30,000Total30,000

Dr. BONUSES ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 18, 2024To Cash A/c5,000August 31, 2024By Balance c/d5,000
Total5,000Total5,000

Dr. DRAWINGS ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 20, 2024To Cash A/c20,000August 31, 2024By Balance c/d20,000
Total20,000Total20,000

Dr. COMMISSION INCOME ACCOUNT Cr.

DateParticularsJ.F.Amount (Rs.)DateParticularsJ.F.Amount (Rs.)
August 31, 2024To Balance c/d5,000August 25, 2024By Cash A/c5,000
TotalTotal5,000
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