What is Ledger – Explained with Example

ledger Feature image

We have explained the whole topic of the ledger in the following parts to understand to proper meaning and utilization of it in the financial accounting.

1. What is Ledger:

These are those books of accounts, in which the accountant has to show all the transactions separately related to all types of accounts, which are already recorded in the journal Daybook. This is maintained in alphabetical order. With the help of ledger, we can get whole information about any particular account because on which all the related journal entries are posted on the continues pages of this book. but in the journal, all the transactions are recording date wise, so we have to check all pages of journal daybook and if we want to know the balance of a particular account then it is very difficult to get it from Journal.

2. Types of Ledger account:

It has three types shown as following:

  1. Debtor/Sale Ledger: All customers to whom goods are sold on credit are recorded in this account.
  2. Creditors/Purchase Ledger: All vendors/ suppliers from whom goods are purchased on credit are recorded in this account.
  3. General Ledger: All other accounts expect Debtors and creditors are recorded in this ledger. like Current assets and fixed assets, Liabilities, Incomes & Expenses, Gains & losses.

3. The format of Ledger:

It has two sides, the left side is the debit side and the right side is a credit side. the format is shown as under :

Dr.
Name of Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
               
               
               
               
               

4. An alternative format: 

This format is now used more than the old one. In this format, Date, particulars and journal folio make common for both transactions debit or credit. Almost in all the accounting software, this format is used. it is shown below:

Dr.
Name of Account Cr.
Date Particulars J.F. Debit Credit
Balance
           
           
           
           
           

5. Posting: 

Posting means recording the transaction in the ledger from the journal or other subsidiary books. First of all, every transaction recorded in the journal or cash book or purchase book or sale book or returns books and then it will post in the ledger. In the posting, we use the prefix on both the side “To” on the debit side and “By” on The credit side.

We will explain it to you in steps as shown below:

01/04/2018 Cash a/c Dr. 10,000  
    To capital a/c     10,000
  (Being capital introduced by owner)

Here we had operated two accounts

  1. Cash a/c
  2. Capital a/c

So, in cash a/c, we have to post the capital a/c

and in the capital a/c, we have to post the cash a/c as shown below:

Example of ledger posting  - What is Ledger -  Explained with Example

In this image, it shows the exact journal entry. Please read according to the direction of arrows.

it shows cash a/c —->Dr —>To capital a/c.

Example of ledger posting 2 - What is Ledger -  Explained with Example

In this image, it shows also the journal entry. Please read according to the direction of arrows.

it shows capital a/c —->Cr. —>By Cash a/c.

This is the reason to use the prefix “To” in the Debit side ” & “By” in the Credit side” because it makes sense.

6. Posting process of a compound journal entry.

we had already explained the meaning of compound journal entry if you did not remember then please click here. I will take the same example of the previous topic of the compound journal entry for easy understanding.

1. By debiting two or more accounts and credited only a single account:

Example 1:

On Date 01/08/2017 Sold goods to Mr Rajan worth Rs. 40,000/- and He paid Rs. 5,000/- in cash and 35,000/- By cheque.

In this above transaction three accounts are involved shown as below:

  1. Cash A/c –  Rs 5,000/- Cash received for it.
  2. Bank A/c – Balance payment made with the cheque.
  3. Sale A/c – Goods sold.
Date Particulars L.F. Debit Credit
01/08/2017 Cash a/c Dr.   5,000  
  Bank a/c Dr.   35,000  
    To Sales a/c       40,000
  (Being Sold goods to Mr Rajan worth Rs. 40,000/- and He paid Rs. 5,000/- in cash and 35,000/- By cheque)      

Post this transaction to the Ledger account as below:

Compound entry Ledger Example 1 - What is Ledger -  Explained with Example

Compound entry Ledger Example 2 - What is Ledger -  Explained with Example

Compound Journal Entry posted to Ledger Example

2. By debiting a single account and credited two or more accounts.

Example 2:

On Date 01/08/2017 Purchase goods from Mr Rohan worth Rs. 30,000/- and paid him Rs. 5,000/- in cash and 25,000/- By cheque.

In this above transaction three accounts are involved shown as below:

  1. Purchase A/c – Goods purchased.
  2. Cash A/c –  Rs 5,000/- Cash paid for it.
  3. Bank A/c – Balance payment made with the cheque.
Date Particulars L.F. Debit Credit
01/08/2017 Purchase a/c Dr.   30,000  
    To Cash a/c       5,000
    To Bank a/c       25,000
  (Being Purchase goods from Mr Rohan worth Rs. 30,000/-   and paid him Rs. 5,000/- in cash and 25,000/- By cheque)      

Post this transaction to the Ledger account as below:

Compound entry Ledger Example 4 - What is Ledger -  Explained with Example

Compound entry Ledger Example 3 - What is Ledger -  Explained with Example

Compound Journal Entry 

7. How to post an Opening journal entry.

we had already explained the meaning of opening journal entry if you did not remember then please click here.

We will take the same example of the previous topic on the compound journal entry for easy understanding.

Example no. 1

Balance sheet year ending 31/03/2017 shown the following balances post it to next financial year:

Closing Balances of Assets are

  1. Furniture & Fixture = 50,000/-
  2. Plant & machine = 2,50,000/-
  3. Land & Building = 25,00,000/-
  4. Vehicle = 3,30,000/-
  5. Copyright = 50,000
  6. Debtors = 80,000/-
  7. Cash = 35,000/-
  8. Bank = 2,75,000/-

Closing Balances of Capital and liabilities are

  1. Capital = 9,90,000/-
  2. Bank loan A/c = 15,00,000/-
  3. Mortgage Loan =  10,00,000/-
  4. Creditors = 80,000/-

Journal entry will be posted as shown below: 

opening journal entry Example - What is Ledger -  Explained with Example

We have to open a total of 12 ledger accounts and Post this transaction to the Ledger account as below:

Opening entry Ledger Example 1 - What is Ledger -  Explained with Example Opening entry Ledger Example 2  - What is Ledger -  Explained with Example Opening entry Ledger Example 3 - What is Ledger -  Explained with Example Opening entry Ledger Example 4 - What is Ledger -  Explained with Example Opening entry Ledger Example 5 - What is Ledger -  Explained with Example

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