Basics of Accounting

Ledger

Dr. Rupali Gupta

At the end of the particular period if we want to know what is the total amount
spent on particular type of expense, or what is the amount payable to particular
person /party?

These types of questions cannot be answered easily through Journal.

So to overcome these limitations of Journal we need Ledger.

The word ‘LEDGER’ is derived from Latin word ‘Ledger’ which means ‘to contain’. As
the ledger is the collection of all the accounts so ‘it contains’ and hence the name
signifies.

It is summarised record which contains all the accounts e.g. Assets A/c, Liabilities
A/c, Capital A/c, Revenue A/c, Expenses A/c.
 Importance of Ledger
1. It is the summarized record of all the transactions in form of Asset A/c, Liabilities A/c,
Expenses A/c, Income A/c etc.
2. The ultimate object of Book-Keeping is to ascertain with the least trouble, what is the
amount owed to the supplier, what is the amount receivable from the customer and so
on. In the process of posting information collected is condensed in form of Debtors A/c ,
Creditors A/c to get the ready results.
3. It is necessary for preparation of Trial Balance.
4. The financial position of the business can be easily known with the help of various
types of Assets A/c and Liabilities A/c
5. It is possible to prepare various types of income statement on the basis of balances
shown by different ledger Accounts.
6. Ledger can be used as a control tool as it shows accounts of various expenses with
the balance.
7. On the basis of the results shown in the Ledger it is useful for the management to
forecast or plan the future plan of action.
Specimen of the ledger in ‘T’ form is given below:

In the books of ………………..

Name of the Account

 Ledger Posting The process of transferring entries from the Journal or
Subsidiary Books into the appropriate account in the Ledger
is called “Posting”.

Steps:

1) From the Journal entries, ledger posting is to be done.

2) Open the necessary ledger accounts with proper headings.
3) If the opening balance of ledger account is given , it should be posted first, either as ‘To
balance b/d’ or ‘By balance b/d’
4) For posting the transactions into the ledger account, first write the date of the
transaction in the date column.
5) In the particular column on the debit side of the ledger account the name of the
account credited in the entry is written and on the credit side of ledger account, the name
of the account to be debited in the entry is written.
Example: 1) Balance of Cash on 1st January 2018 Rs. 15,000
2) On 5th January 2018 Raj invested Rs 10,000 in the business.

Journal Entry:

2018 Cash A/c ..Dr. 10,000

January To Raj Capital A/c 10,000
18 (Being cash invested into business by Raj)

Ledger
Dr. Cash A/c Cr.
Date Particulars JF Amt Date Particulars JF Amt
2018 Jan To Balance B/d 15,000
18 To Raj’s Capital A/c 10,000

Dr. Raj Capital A/c Cr.

Date Particulars JF Amt Date Particulars JF Amt
2018 Jan By Cash A/c 10,000
18
 Example: 2018, Jan 18 : Paid Rs 3,000 as Rent and Rs 5,000 as Salaries.
Journal Entry:
2018 Rent A/c ..Dr. 3000
January Salary A/c ..Dr. 5000
18 To Cash A/c 8000
(Being Rent and Salaries paid for cash)

Dr. Rent A/c Cr.

Date Particulars JF Amt Date Particulars JF Amt
2018 Jan To Cash A/c 3000
18
Dr. Salary A/c Cr.
Date Particulars JF Amt Date Particulars JF Amt
2018 Jan To Cash A/c 5000
18
Dr. Cash A/c Cr.
Date Particulars JF Amt Date Particulars JF Amt
2018 Jan By rent A/c 3000
18 By Salary A/c 5000
 1. Personal
Balancing of Ledger Accounts 2. Real
3. Nominal

Balancing of Personal Accounts

These accounts may have debit balance or credit balance or nil balance. A personal
account having debit balance is a Debtor and credit balance is a Creditor. Balance of these
accounts is carried forward.

a) Debit balance: If the debit side total of ledger Account is more than the credit side
total it indicates a debit balance.

b) Credit balance: If the credit side total of ledger Account is more than the debit side
total it indicates a credit balance.
 2018 Feb 1 Sold goods to Raghav , Rs 6000
Example:
Feb 3 Received cash from Raghav Rs 5,400 and allowed him cash discount Rs. 600
Feb 17 Invoiced goods to Raghav Rs 14000.
Feb 20 Received from Raghav Rs 6,000.

2018 Feb Raghav A/c ..Dr 6000

1 To Sales A/c 6000
(Beings goods sold to Raghav on Credit)
Feb 3 Cash A/c ..Dr. 5400
Discount A/c ..Dr. 600
To Raghav A/c 6000
(Being Cash received from Raghav and discount allowed)
Feb 17 Raghav A/c ..Dr. 14,000
To Sales A/c 14,000
(Being goods sold on credit to Raghav)
Feb 20 Cash A/c ..Dr. 6000
To Raghav A/c 6000
(Being Cash received from Raghav)
Total 32000 32000
Dr. Raghav A/c Cr.
Date Particulars JF Amt Date Particulars JF Amt
2018 Feb To Sales A/c 6000 2018 By Cash A/c 5400
1 Feb 3 By Discount A/c 600
Feb 17 To Sales A/c 14000 Feb 20 By Cash A/c 6000
Feb 28 By Balance c/d 8000
20000 20000

March 1 To Balance B/d 8000

Note: Raghav’s A/c is having Debit balance so he is a Debtor of the business.

Balancing of Real A/c

Accounts which are related to assets and properties are real accounts. e.g.: Cash A/c,
Furniture A/c etc. Real Account always shows a debit balance.

Example: Pass necessary Journal Entries for the following transactions and show Cash
Account only.

2019 March
1 Cash Balance Rs 10000
6 Bought goods Rs 2500
7 Received from Sudhir Rs 3000
10 Paid to Madhuri Rs 2000
12 Cash Sales Rs 7000
20 Paid rent Rs 3500
2019
March
6 Purchase A/c ..Dr. 2500
To cash A/c 2500
(being goods purchased for cash )
7 Cash A/c ..Dr. 3000
To Sudhir A/c 3000
(Being cash received from Sudhir)
10 Madhuri A/c ..Dr. 2000
To cash A/c 2000
(Being cash paid to madhuri)
12 Cash A/c ..Dr. 7000
To sales A/c 7000
(Being Cash sales done)
20 Rent A/c ..Dr. 3500
To Cash A/c 3500
(Being rent paid)
Dr. Cash A/c Cr.
Date Particulars JF Amt Date Particulars JF Amt
2019 To balance b/d 10000 2019 By Purchase A/c 2500
March 1 March 6
March 7 To Sudhir A/c 3000 March 10 By Madhuri A/c 2000
March 12 To Sales A/c 7000 March 20 By Rent A/c 3500
March 31 By Balance c/d 12000
20000 20000

April1 To balance B/d 12000

Nominal Accounts means the accounts

which are related to expenses, incomes,

Balancing of
losses and gains. This account may have a Nominal Accounts
debit balance or a credit balance. At the

end of the accounting year the balances of

all Nominal Accounts are transferred to

Trading or Profit and Loss Account

 Example:

2019
Feb 1 Salaries A/c (Dr Balance Rs 30000)
Feb 5 Paid salaries by cheque Rs 5000
March 5 Paid salaries Rs 3000

Dr. Salaries A/c Cr.

Date Particulars JF Amt Date Particulars JF Amt
2019
Feb 1 To Balance B/d 30000 Feb 28 By Balance c/d 35000
Feb 5 To bank A/c 5000
35000 35000
March 1 To Balance b/d 35000 March 31 By Profit & loss A/c 38000
March 5 To cash A/c 3000
38000 38000
 Preparation of Trial Balance

• A Trial balance is an abstract or list of all the ledger accounts as on a specific

date showing debit and credit balances of all Ledger Accounts.

• Usually, Trial Balance is prepared at the end of the financial year.

• Can be prepared periodically depending upon requirement of the business.

• It is prepared to ascertain the arithmetical accuracy of Books of Accounts.

• If an account shows a credit balance then its balance is recorded in the credit
amount column and vice versa.
 Format of Vertical / Journal form of Trial
Balance
Trial Balance as on………..

S. No. Head of Account LF Debit (in Credit (in

₹) ₹)

Utility of a Trial Balance:

1) It shows balances of different Ledger accounts.

2) It proves arithmetical accuracy of Books of Accounts.

3) It helps to prepare Final Accounts of a business.

Example: Journalise the following transactions in the books of Virat traders, open
necessary ledger accounts, balance the accounts and prepare a Trial Balance as on 31st
March 2019

2019 March
1 Virat started business with Cash Rs 50,000, Cash at Bank of India Rs 7,000, Furniture Rs
10,000.
3 Purchased goods from Rohit worth Rs 10,000 less 10% T.D.
7 Sold goods to Sunil Rs 5,000 less 5% T.D.
10 Deposited Cash with Bank Of India Rs 5,000
12 Purchased Furniture from Varma on credit worth Rs 20,000
15 Paid to Varma by net banking Rs 8,000
17 Paid Printing expenses Rs200
20 Received Commission ` 200
25 Withdrew Cash from Bank Rs 1,000 by ATM
28 Paid to Varma Rs 11,500 in full settlement of his account.
30 Paid Advertisement bill Rs 500
2019 Cash A/c Dr. 50000
March 1 Bank of India A/c Dr. 7000
Furniture A/c Dr. 10000
To Virat's Capital A/c 67000
(Being started business with cash, bank and
furniture)
March 3 Purchases A/c Dr. 9000
To Rohit's A/c 9000
(Being purchased goods from Rohit less 10%
T.D.)
March 7 Sunil's A/c Dr. 4750
To Sales A/c 4750
(Being goods sold to Sunil less 5% T.D.)
March 10 Bank of India A/c Dr. 5000
To Cash A/c 5000
(Being cash deposited with Bank)
March 12 Furniture A/c Dr. 20000
To Varma's A/c 20000
(Being purchased furniture from Varma)
March 15 Varma's A/c Dr. 8000
To Bank of India's A/c 8000
(Being purchased furniture by net banking)
Balance c/f 113750 113750
 Balance b/f 113750 113750
March 17 Printing Expenses A/c Dr. 200
To Cash A/c 200
(Being paid printing bill)
March 20 Cash A/c Dr. 200
To Commission A/c 200
(Being received commission)
March 25 Cash A/c Dr. 1000
To Bank of India's A/c 1000
(Being withdraw cash from Bank)
March 28 Varma's A/c Dr. 12000
To Cash A/c 11500
To Discount received A/c 500
(Being paid to Varma in full settlement of his
account.)
March 30 Advertisement A/c Dr. 500
To Cash A/c 500
(Being paid Advertisement bill)
Grand Total 127650 127650