Topic 4: Ledger

By Srinivas Methuku
Chapter objectives

After completion of this chapter you should be conversant about:

 Meaning and contents of ledger
 Specimen of ledger
 Posting of entries from journal to ledger
 Balancing of ledger
Introduction to Ledger

 Introduction
 A Ledger is a book which contains all the accounts
whether personal, real or nominal, which are first
entered in journal
Meaning and contents of Ledger

 Ledger is a principal or main book which contains all the

accounts in which the transactions recorded in the books of
original entry are transferred. Ledger is also called the ‘Book of
Final Entry’ or ‘Book of Secondary Entry’, because the
transactions are finally incorporated in the Ledger.
 According to L.C. Cropper, ‘the book which contains a classified
and permanent record of all the transactions of a business is
called the Ledger’.
Utility of Ledger

 The following are the advantages of ledger:

a) Complete information at a glance
b) Arithmetical Accuracy
c) Result of Business Operations
d) Accounting information
Specimen of Ledger
Dr. Account Name
Cr.
Date Particulars J.F. Amoun Date Particulars J. Amount
t Rs. F. in Rs.
Date To (Name of credit Date By (Name of debit
Month account in journal) Month account in journal)
Year Year
Posting of entries from journal to Ledger

 The process of transferring the entries recorded in the journal to

the respective accounts opened in the ledger is called Posting.
 In other words, posting means grouping of all the transactions
relating to a particular account at one place.
 Procedure of Posting
 Posting of Compound Journal Entries
Balancing of Ledger

 Balance is the difference between the total debits and the total
credits of an account. When posting is done, many accounts may
have entries on their debit side as well as credit side. The net
result of such debits and credits in an account is the balance.
 Balancing means the writing of the difference between the
amount columns of the two sides in the lighter (smaller total)
side, so that the grand totals of the two sides become equal.
Significance of balancing

 There are three possibilities while balancing an

account during a given period. It may be a debit
balance or a credit balance or a nil balance
depending upon the debit total and the credit
total.
Balancing of different accounts
 Balancing is done periodically, i.e., weekly, monthly, quarterly, half
yearly or yearly, depending on the requirements of the business.
I. Personal Accounts : These accounts are generally balanced regularly to
know the amounts due to the persons (creditors) or due from the
persons (debtors).
II. Real Accounts : These accounts are generally balanced at the end of
the financial year, when final accounts are being prepared. However,
cash account is frequently balanced to know the cash on hand.
 A debit balance in an asset account indicated the value of the asset
owned by the business. Assets accounts always show debit balances.
Balancing of different accounts
III. Nominal Accounts : These accounts are in fact, not to be
balanced as they are to be closed by transfer to final accounts.
 A debit balance in a nominal account indicates that it is an
expense or loss. A credit balance in a nominal account indicates
that it is an income or gain.
 All such balances in personal and real accounts are shown in the
Balance Sheet and the balances in nominal accounts are taken to
the Profit and Loss Account.
Distinction between Journal and Ledger :
Basic distinction Journal
1. Book It is the book of primary entry
2. Stage Recording of entries in these books is
first stage
3. Process The process of recording of entries in
these books is ‘Journalising’
4. Transactions Transactions relating to person or
property or expense are spread over
5. Net Effect The final position of the particular
account can’t be found
6. Next Stage Entries are transferred to the ledger
7.Tax Authorities Don’t rely upon these books
Ledger
It is the main book of account
Recording of entries in the ledger is
second stage
The process of recording of entries in the
ledger is called ‘Posting’
Transactions relating to a particular
account are found together on a
particular page
The position of a particular account can
be ascertained with a glance
From the ledger trial balance is drawn
and other final accounts are prepared
Rely upon these books
Journalise the following transactions of Mr. Ravi
and post them in the ledger and balance the same.

2014, June 1 Ravi invested Rs.5,00,000 cash in the business

3 Paid into Bank Rs.80,000
5 Purchased building for Rs.3,00,000
7 Purchased goods for Rs.70,000
10 Sold goods for Rs.80,000
15 With drew cash from bank Rs.10,000
25 Paid electric charges Rs.3,000
30 Paid Salary Rs. 15,000
Journalise the following transactions in the Journal of Mr.
Shanmugam, post them in the ledger and balance them.

 2013, Aug. 1 Started business with Rs.4,50,000

 3 Goods purchased Rs.70,000
 5 Goods sold Rs.51,000
 10 Goods purchased from Rangasamy Rs.2,00,000
 16 Goods returned to Rangasamy Rs.5,000
 23 Drew from bank Rs.30,000
 26 Furniture purchased Rs.10,000
 27 Settled Rangasamy’s account
 31 Salaries paid, Rs.12,000
Enter the following transactions in journal and post them in the ledger of Mr. Govindarajan and
balance them.
 2013, Aug 1 Govindarajan commenced his business with the following assets and liabilities.
 Plant and Machinery Rs.2,50,000.
 Stock Rs. 90,000.
 Furniture Rs.7,000.
 Cash Rs. 50,000.
 Sundry creditors Rs. 1,50,000.
 2 Sold goods to Sundar Rs. 1,50,000.
 3 Bought goods from Natarajan Rs.65,000.
 4 Sundar paid cash Rs. 1,25,000.
 6 Returned damaged goods to Natarajan Rs.2,000.
 10 Paid to Natarajan Rs.28,000.
 31 Paid rent Rs. 5,000. Paid salaries Rs. 9,000.
From the following entries Journalise the transactions and prepare
necessary ledger accounts:
 2015 Mar.1 Introduced further capital in cash Rs.25,000/-.
 2 Deposited Rs.15,000/- into the bank.
 4 Received Rs.3,000/- from Mr. Govind
 7 Paid Rs.4,000/- to Mr. Nair
 9 Bought goods costing Rs.17,500/- on credit from Nair.
 15 Sold goods to Mr. Govind for Rs.16,000/-
 20 Bought goods from Mr. Nair for Rs.40,000/-
 24 Withdrew Rs.12,000/- from bank for office use
 25 Good costing Rs.20,000/- sold @ 25% Profit.
 26 Rent paid by cheque Rs.6,000/-
 27 Salaries paid Rs.10,000/- a wages Rs.2,000/-
 29 Received cash from Govind Rs.9,000/- and allowed him discount Rs.100/-.
 30 Withdrawn cash Rs.4,000/- and Rs.6,000/- by cheque for personal use.