Professional Documents
Culture Documents
Definition
The ledger accounts are the separate records of the business transactions carried by an entity which are
prepared using the reference of the daily journal entries and are related to a specific account which can
be an asset or a liability, capital or equity, expense item or revenue item.
Basically a ledger account contains information about the opening and the closing balances of a
particular account and the periodical debit and credit adjustments on the basis of journal entries
prepared on daily basis.
The most important information that a ledger account provides are the periodical (usually annual)
closing balances about a specific item or account.
The ledger accounts are important in formation of trial balances and also the financial statements of the
company.
In order to better understand the working of ledger accounts, let’s discuss some examples:-
Example 1: Mr. John Wick wants to start a new clothing business. He has a total sum of $100,000 in his
savings that can be invested. He owns a small shop at a primary location that can be used to start a retail
clothing outlet. For the store he purchased furniture including shelves, a counter desk and others
equipments for $15,000. He also hires a staff of two for customer support and other office work for
$5,000 each.
Mr. Wick decided to start with men’s clothing and purchased a complete range of men clothes from the
wholesale market which costs him around $75,000. The initial purchase got sold in a period of not more
than 1 month for a total of $95000.
Mr. Wick wants to journalize these transactions and create ledger accounts for the month of April 2019.
1. Journal Entries
Journal Entries
Amount in $
L.F
Date Particulars . Debit Credit
1/4/201
9 Cash A/c 10 100,000.00
To Capital A/c 1 100,000.00
Being Capital Invested
1/4/201
9 Furniture and Equipments 11 15,000.00
To Cash A/c 10 15,000.00
Being purchase of furniture
1/4/201
9 Purchase A/c 2 75,000.00
To Cash A/c 10 75,000.00
Being purchase of Goods
30/4/19 Salaries A/c 5 10,000.00
To Cash A/c 10 10,000.00
Being payment of Salary
Apr-19 Cash A/c 10 95,000.00
To Sales 3 95,000.00
Being Sales made against Cash
2. Ledger Accounts
Example 2: David Baker wants to start a forging factory, where he can manufacture high quality of chef
and military knives. On January 1 2018, he invested a sum of $1,000,000 as capital and started The
Damascus Forging Works. He took a bank loan of $750,000 @ 5% PA and invests remaining amount of
$250,000 from his own savings. He opened a current account and deposited $800,000.
On Jan 2, he rented a factory in the nearby industrial area for $20,000 per month and deposited
$100,000 in advance by cheque.
On Jan 4, Mr. Baker purchased the necessary machineries for $500,000, paid by cheque.
After setting up the factory, he started production from 5 thJan and following transactions took place
during 1st year:-
Since Mr. Baker maintained all the accounting records himself, he wants our help to create ledger
accounts for the firm.
Ledger Folio
Accounts (LF)
Cash 1
Bank 2
Capital 3
Bank Loan 4
Factory Advance 5
Purchases 6
Creditors 7
Sales 8
Debtors 9
Rent 10
Electricity 11
Wages 12
Interest expenses 13
Machinery A/c 14
Depreciation 15
Cash Account (No.1)
Date Particulars J.R Amount Date Particulars J.R Amount
By Wages 12 45,000.00
1,550,000.0 1,550,000.00
Capital Account (No.3)
Date Particulars J.R Amount Date Particulars J.R Amount
250,000.00 250,000.00
100,000.00 100,000.00
800,000.00 800,000.00
400,000.00 400,000.00
Sales Account (No.8)
Date Particulars J.R Amount Date Particulars J.R Amount
1,000,000.0 1,000,000.0
200,000.00 200,000.00
240,000.00 240,000.00
25,000.00 25,000.00
45,000.00 45,000.00
500,000.00 500,000.00
50,000.00 50,000.00