Accounting, b/d, Balancing an Account, Brought Down, c/d, Carrying Down, Closing Balance, Format of a Ledger, General Ledger, Impersonal Ledger, Ledger, Opening Balance, Personal Ledger, Posting, Private Ledger, Types of Ledger
INTRODUCTION TO LEDGER
After entering transactions in a journal, the entries are transferred into appropriate accounts in the LEDGER. This is done either weekly, monthly or quarterly depending on the requirements of the business. This is done to know the exact position of each account on any particular date. LEDGER is a collection or set of accounts where transactions of similar nature are grouped together in one place in the form of an account. It contains the accounts of persons with whom the business deals, assets possessed by the business and the expenses incurred and income gained by the business.
TYPICAL FORMAT OF A LEDGER
TYPES OF LEDGERS
Personal Ledger are of two types.
- Purchase or Creditor’s Ledger: Accounts relating to persons or business from whom goods are purchased on credit are entered in this ledger.
- Sales or Debtor’s Ledger: Accounts relating to persons or business to whom goods are sold on credit are entered in this ledger.
Impersonal Ledger: All other accounts are maintained in this account.
General Ledger: This ledger contains all real and nominal accounts.
Private Ledger: This ledger contains all capital and drawings accounts of the trader.
POSTING AND ITS PROCESS FOR DEBIT AND CREDIT TRANSACTIONS
Posting is the process of transferring the entries recorded in the journal into appropriate accounts in the ledger. The debit part in the in the journal goes into the debit side of the ledger and the credit part goes into the credit side of the ledger. The steps for both debit and credit side of ledger posting are different and is explained below.
Process of Posting in Debit Side of Ledger
- Take the debit aspect of journal entry
- Look into the account opened to be debited in the ledger
- Enter the date in the date column of the ledger
- In the particulars column, write the name of the other aspect appearing in the second line of the journal entry with a prefix “TO”
- The debit amount is written in the debit column
Process of Posting in Credit Side of Ledger
- Take the credit aspect of the same journal entry
- Post it to the credit of that account opened for crediting it with the prefix “BY”
- The other aspect is written in the particulars column
- The credit amount is written in the credit column
BALANCING AN ACCOUNT IN THE LEDGER
It may be necessary at some point (usually month or year) to ascertain the balance in an account. There may be many debits and credits in an account. The difference between the two sides of an account is known as Account Balance. The process of ascertaining the balance of a particular account on a given date is called Balancing an Account.
In order to balance an account, total up the two sides on a separate piece of paper. The total of the side which is heavier is put on both sides leaving a little space above the total for CARRYING DOWN (c/d) the balance at the lower side. The difference in the account should be BROUGHT DOWN (b/d) on the heavier side. These closing balances will be the opening balances for the next period.
In case the total of the both the sides of an account are equal, then that account is said to have NO BALANCE at all. While closing the ledger accounts, we can ascertain the balances at the end of the accounting period called CLOSING BALANCE. This balance will be the first item in the next accounting period as OPENING BALANCE.
SIGNIFICANCE OF BALANCING THE LEDGER FOR PERSONAL ACCOUNT
Personal Account may show a debit balance or a credit balance. Debit balance indicates that the person concerned has received more benefits from the business than what he has given it to the business. Hence the person owes some amount to the business and he is a DEBTOR. Credit balance indicates that the person has given more benefits to the business than what he has taken from the business. Hence the business owes some amount to the person and he is a CREDITOR.
SIGNIFICANCE OF BALANCING THE LEDGER FOR REAL ACCOUNT
Real Accounts are accounts relating to the assets and other properties like machinery and will always show debit balance. Those possessed or acquired by the business owners are called ASSETS and are shown under debit balance. Amounts owed by the business are called LIABILITIES and are shown under credit balance.
SIGNIFICANCE OF BALANCING THE LEDGER FOR NOMINAL ACCOUNT
Nominal Accounts are accounts relating to Expenses, Losses, Incomes and Gains and are not balanced along with other accounts. Some rules and regulations for Nominal Accounts are as below.
- At the end of the accounting period, the debits or credits of these accounts are transferred to Trading and Profit and Loss Account (P&L) respectively
- Expenses will show Debit Balance and Incomes will show Credit Balance
- Purchases, Sales, Purchase Returns and Sales Returns are transferred to Trading and P&L Account
- Opening Stock Account is transferred to Trading Account
- Closing Stock is balanced by carried down