Ledger

Ledger is the principal book of accounts where similar transactions relating to a particular
person or property or revenue or expense are recorded. It is a set of accounts. It contains all
accounts of the business enterprise whether real, nominal or personal. The main function of a
ledger is to classify or sort out all the items appearing in the journal or other subsidiary books
under their appropriate accounts so that at the end of the accounting period each account will
contain the entire information of all the transactions relating to it in a summarised or condensed
form.

Characteristics of Ledger:
• The ledger account is divided into two sides - the left hand side is known as debit side
while the right hand side is known as credit side. The abbreviations ‘Dr.’ and ‘Cr.’ are
placed at the top left and right hand corners respectively as a custom.
• The name of account is written in the top middle of the account.
• J.F. denotes folio or page number on which its journal entry has been passed.

Difference between Journal and Ledger:

• The transactions are recorded first in the journal and then they are posted to the ledger.
Thus, journal is the book of first or original entry while the ledger is the book of second
entry.
• The journal is the book of chronological record while the ledger is the book of the
analytical record.
• The process of recording transaction in journal is termed as “Journalising” while the
process of recording transactions in the ledger is known as ‘Posting’.

Posting

Posting is the process of transferring the transaction recorded in the books of original entry in
the concerned accounts in the ledger. It may be done daily, weekly, fortnightly or monthly
according to the convenience and requirements of the business.
Procedure of posting for an Account that has been debited in a transaction

1. With the help of an Index, open that page on which the concerned account appears.
2. Enter the date of the transaction, in the 'Date column' on the debit side.
3. Record the name of the account credited in the journal, in the 'Particulars column' on
the debit side as "To...(name of the account credited)..."
4. Record the page number of the Journal in the 'Folio column' on the debit side and in the
journal, write the page number of the ledger on which a particular account appears in
the 'Ledger Folio column'.
5. Enter the relevant amount in the 'Amount column' on the debit side.

Procedure of posting for an Account that has been credited in a transaction

1. With the help of an Index, open that page on which the concerned account appears.
2. Enter the date of the transaction, in the 'Date column' on the credit side.
3. Record the name of the account debited in the journal in the 'Particulars column' on the
credit side as "By........(name of the account debited)
4. Record the page number of the journal in the 'Folio column' on the credit side and in
the journal, write the page number of the ledger on which a particular account appears
in the 'Ledger Folio column'.
5. Enter the relevant amount in the 'Amount column' on the credit side.

Balancing
After posting into ledger, the next step is to ascertain the net effect of all transactions posted to
an account.

Balance of an account
Balance of an account is the difference between the total of debits and total of credits appearing
in an account. It signifies the net effect of all transactions posted to that account during a given
period. It may be a debit balance or a credit balance or a nil balance, depending upon whether
the debit or credit side total is higher.
Usually, personal and real accounts are balanced. Nominal accounts are not generally balanced
but are closed by transferring to trading and profit and loss account.
Steps involved in balancing a Ledger

1. Total both the 'Debit Amount column' and 'Credit Amount column' separately and
ascertain the difference in two totals.
2. If the debit side total exceeds the credit side total, put such difference (called debit
balance) on the credit side in 'Credit Amount column', write the date on which balancing
is being done in the 'Date column' and the words By Balance c/d' in 'Particulars column'.

OR

If the credit side total exceeds the debit side total, put such difference (called credit
balance) on the debit side in 'Debit Amount column', write the date ca which balancing
is being done in the 'Date column' and the words "To Balance c/d' in Particulars column.

3. Total both the 'Debit Amount column' and 'Credit Amount column' and put the total on
both the sides and draw a double the immediately beneath the totals.

4. Enter the date of the beginning of next period in 'Date column' and bring down the debit
balance on the debit side along with the words ‘To Balance b/d' in Particulars column
and the credit balance on the credit side along with the words ‘By Balance b/d’ in
'Particulars column'.

Example
Journalize the following transactions, post them into the Ledger and balance the accounts on
31 January.
1. Ram started business with cash Rs 10000
2. He purchased goods from Mohan on credit Rs 2000
3. He paid cash to Mohan Rs 1000
4. He sold goods to Suresh Rs 2000
5. He received cash from Suresh Rs 3000
6. He further purchased goods from Mohan Rs 2000
7. He paid cash to Mohan Rs 1000
8. He further sold goods to Suresh Rs 2000
 9. He received cash from Suresh Rs 1000
Journal
Date Particulars L.F. Debit Credit
1 Cash 10000
To capital 10000

2 Purchases 2000
To Mohan 2000

3 Mohan 1000
To Cash 1000

4 Suresh 2000
To Sales 2000

5 Cash 3000
To Suresh 3000

6 Purchases 2000
To Mohan 2000

7 Mohan 1000
To Cash 1000

8 Suresh 2000
To Sales 2000

9 Cash 1000
To Suresh 1000
24000 24000
Ledger
Cash Account
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
Jan 1 To Capital A/c 10000 Jan 3 By Mohan 1000
Jan 5 To Suresh 3000 Jan 7 By Mohan 1000
Jan 9 To Suresh 1000 Jan 31 By Balance c/d 12000
14000 14000
Feb 1 To Balance b/d 12000

Capital Account
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
Jan 31 To balance c/d 10000 Jan 1 By cash a/c 10000
10000 10000
Feb 1 By balance b/d 10000

Purchases Account
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
Jan 2 To Mohan 2000 Jan 31 By Balance c/d 4000
Jan 6 To Mohan 2000
4000 4000
Feb1 To balance b/d 4000

Mohan
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
Jan 3 To Cash A/c 1000 Jan 2 By Purchases A/c 2000
Jan 7 To Cash A/c 1000 Jan 6 By Purchases A/c 2000
Jan 31 To Balance c/d 2000
4000 4000
 Feb 1 By balance b/d 2000

Sales Account
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
Jan 31 To balance c/d 4000 Jan 4 By Suresh 2000
Jan 8 By Suresh 2000
4000 4000
Feb 1 By balance c/d 4000

Suresh
Dr. Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
Jan 4 To sales a/c 2000 Jan 5 By cash a/c 3000
Jan 8 To sales a/c 2000 Jan 9 By cash a/c 1000
4000 4000

Trial Balance
A trial balance is a bookkeeping worksheet in which the balance of all ledgers are compiled
into debit and credit account column totals that are equal. The general purpose of
producing a trial balance is to ensure the entries in a company's bookkeeping system are
mathematically correct.

Objectives of preparing Trial Balance

Checking the arithmetical accuracy of journal entry
Basis for financial statements
Summarized ledger

Methods
Total Method
Balance Method
Total and Balance Method
Total Method
Trial Balance
As on 31 March 20x1
Particulars Debit Credit
Cash A/c 14000 2000
Capital a/c 10000
Purchases 4000
Sales 4000
Mohan 2000 4000
Total 20000 20000

Balance Method
Trial Balance
As on 31 March 20x1
Particulars Debit Credit
Cash A/c 12000
Capital a/c 10000
Purchases 4000
Sales 4000
Mohan 2000
Total 16000 16000

Total and Balance Method

Trial Balance
As on 31 March 20x1
Particulars Total Method Balance Method
Debit Credit Debit Credit
Cash 14000 2000 12000
Capital 10000 10000
Purchases 4000 4000
Sales 4000 4000
Mohan 2000 4000 2000
Total 20000 20000 16000 16000