THE LEDGER Meaning of a ledger.

A ledger is a book in which accounts are Kept.An account is a record which

gives the history of transactions affecting a given item .For example, furniture
account is a record of all transactions that have affected furniture for a given
period.Therefore,transactions that increase or decrease the value of an item
are summarised by recording them in an account.
Purpose of a ledger.
• Identify items existing in a business by name.
• Summerize transactions affecting the various accounts by making
entries.
• Show the closing balances Of accounts.
• Facilitate the posting of transactions from the books of original entry.
• Facilitate the extraction of a trial balance.
• Facilitate the identification of book-keeping errors.
• It eliminates the need to use balance sheets to record transactions:a
process that could be slow and tedious.
Double Entry Concept.
Every transaction affects two or more accounts and this requires that
the effect is reflected in the accounts.Any transaction must therefore
be recorded at least in two different places by means of debit and
credit entries in the respective accounts.
A debit entry is an entry on the left hand side of an account while a
credit entry is an entry the right hand side of an account.
The double entry concept is based on the fact that:*for every debit
entry there must be a corresponding credit entry*
Format of an Account.

Debit side Credit side

Double Entry Rules
Different classes of accounts are debited or credited to record
increases or decreases in their values.
Summary of recording increases or decreases of various classes of
accounts.

Classes of Accounts. Increase(+) Decrease(-)

Assets Debit Credit
Liabilities Credit Debit
Capital Credit Debit
Expenses Debit Credit
Revenues/incomes Credit Debit
Summary of Entries
Dr Any Asset Account Cr
Increases(+) Decreases(-)

Dr Any Liability Account Cr

Decreases(-) Increases(+)
Dr Any Capital Account Cr
Decreases(-) Increases(+)

Dr Any Expense Account Cr

Increases(+) Decreases(-)
Dr Any Revenue Account Cr
Drecreases(-) Increases(+)
 Recording transactions via the Ledger
(a) Njoroge started a kiosk with shs 10,000 cash.
Analysis;-capital increased and cash also increased.
Classification;-capital is (Capital) while cash is an Asset.
Recording;-Capital is Credited,and Cash is Debited.
Entries:
Dr Capital A/C Cr
sh sh
cash 10,000

Dr Cash A/C Cr
sh sh
capital 10,000
NB: When recording entries in the accounts,the particulars in each account must have a cross reference of the
other account affected by the same transaction.In the above example ,capital A/C has been credited because
of cash while the cash A/C has been debited because of capital.

(b) Bought furniture sh 6000 cash.

Analysis;-furniture increases,cash decreases.
Classification;-furniture is an Asset,cash is an Asset.
Recording;-furniture is debited,and cash is credited.
Entries:
Dr Cash A/C Cr
sh Sh
6000
Dr Furniture A/C Cr
Sh sh
cash 6000
(c) Paid salaries sh 1000 cash.
Analysis;-salaries increased, cash decreased.
Classification;-salaries is an Expense, cash is an Asset.
Recording;-Salaries is debited, and Cash is credited.
Dr Cash A/C Cr
sh sh
salaries 1000

Dr Salaries A/C Cr
sh sh
cash 1000
 Detailed format of the “T” Account.
The “T” account should have the following information on either side
of it.
(i) Date column.
(ii) Details column for cross-referencing.
(iii) Folio column to show the page numbers of the corresponding
account cross-referenced.
(iv) Amounts column.
Dr Account Title Cr
Date Details Folio Amount Date Details Folio Amount
sh sh
 Recording of stock in ledger accounts.
Stock refers to those goods that are bought by a business for the
purpose of resale.
Stock is recorded in four accounts;
(i) Purchases account;- used to record purchase of stock by a
business.
(ii) Purchases Returns account;- used to record return of stock
previously bought by a business to suppliers.
(iii) Sales account;- used to record sale of stock to customers.
(iv) Sales returns account;- used to record return of stock previously
sold to customers. This happens when customers return goods to a
business.
EXAMPLES
Example 1
On 1st March 20-3 Jambo Traders bought stock costing sh 4,000 in cash.
Dr Purchases Account Cr
Date Details Folio Amount Date Details Folio Amount
sh sh
20-3
March 1 Cash 4,000

Dr Cash Account Cr
Date Details Folio Amount Date Details Folio Amount
sh sh
20-3
March 1 Purchases 4,000
 Example 2
On 6th March 20-3 Jambo Traders sold stock worth sh 4,500 to Amolo on
credit.
Dr Amolo Account Cr
Date Details Folio Amount Date Details Folio Amount
sh sh
20-3
March 6 Sales 4,500

Dr Sales Account Cr
Date Details Folio Amount Date Details Folio Amount
sh sh
20-3
March 6 Amolo 4,500
Example 3
On 9th March 20-3 Jambo Traders returned stock worth sh 200 to Biashara
stores
Dr Biashara Stores Account Cr
Date Details Folio Amount Date Details Folio Amount
sh sh

20-3
March 9 Purchases
returns 200
Dr Purchases Returns Account Cr
Date Details Folio Amount Date Details Folio Amount
sh sh
20-3
March 9 Biashara
stores 200
Example 4
On 12th March 20-3 Amolo returned stock worth sh 150 to Jambo Traders.
Dr Sales Returns Account Cr
Date Details Folio Amount Date Details Folio Amount
sh sh
20-3
March 12 Amolo 150

Dr Amolo Account Cr
Date Details Folio Amount Date Details Folio Amount
sh sh
20-3
March 12 Sales
Returns 150
Exercise
Record the following transactions in the relevant ledger accounts:
20-3
April 1 Juma started a business with sh 80,000 cash.
“ 2 Bought stationery for sh 40 and paid in cash.
“ 3 Opened a bank account and deposited sh 50,000 from the cash till.
“ 4 Bought motor vehicle worth sh 250,000 from Weru motors on
credit.
“ 5 Bought postage stamps for sh 60 in cash.