Chapter 13 – Ledger
Meaning & Definition: The Ledger is the principal book of accounts where all transactions recorded in the Journal or subsidiary books are posted to individual accounts. It’s often called the “Book of Final Entry” because it provides a summarized, categorized record of all transactions affecting a particular account.
Purpose/Importance:
Categorization: Organizes transactions by individual accounts.
e.g., Cash, Capital, Purchases, Sales, Specific Debtors/Creditors.
Information at a Glance: Shows the net effect (debit or credit balance) of all transactions related to a specific account, making it easy to determine the current position of assets, liabilities, expenses, revenues, etc.
Preparation of Financial Statements: The balances of ledger accounts are crucial for preparing the Trial Balance, which is the basis for preparing the Profit & Loss Account and Balance Sheet.
Decision Making: Provides summarized financial data for management to make informed decisions.
Reduced Errors: Helps in reducing numerical and calculative mistakes as it provides a structured way to track entries.
Books of Original Entry (Journal) and Ledger
| Feature | Books of Original Entry (Journal) | Ledger |
| Meaning | A book where transactions are first recorded chronologically. | A book where transactions are classified and summarized by account from the Journal. |
| Stage in Accounting Cycle | First stage (Original Entry) | Second stage (Final Entry or Principal Book) |
| Recording Order | Chronological order of transactions. | Analytical order of transactions. |
| Narration | Yes, each entry includes a brief explanation (narration). | No, generally does not include narration. |
| Basis for | Basis for posting to the Ledger. | Basis for preparing the Trial Balance and subsequently financial statements. |
| Balance | Does not show the balance of any account. | Shows the current balance (debit or credit) of each account. |
| Folio Reference | Contains a Ledger Folio (L.F.) column to show the ledger page number. | Contains a Journal Folio (J.F.) column to show the journal page number. |
| Types | General Journal, Cash Book, Purchases Book, Sales Book, etc. | Cash Account, Bank Account, Sales Account, Purchases Account, Debtors’ Accounts, Creditors’ Accounts, etc. (all individual accounts) |
| Error Detection | Helps detect errors of omission (missing transactions) and provides an audit trail. | Helps detect arithmetical errors through balancing and trial balance. |
| Information Provided | Day-to-day detailed transaction history. | Summarized position of each account at a glance. |
Proforma of Ledger
|
Date |
Particulars |
J.F |
Amount |
Date |
Particulars |
J.F |
Amount |
Each side generally includes the following columns:
Date: The date of the transaction.
Particulars: The name of the opposite account affected by the transaction (to indicate the contra account).
Journal Folio (J.F.): The page number of the Journal from where the entry has been posted. This acts as a cross-reference.
Amount (₹): The monetary value of the transaction.
Rules of Posting
The fundamental rule of posting is derived from the double-entry system:
- For every debit in the Journal, there must be a corresponding credit in the Ledger.
- For every credit in the Journal, there must be a corresponding debit in the Ledger.
Specific Rules:
- When an account is Debited in the Journal:
Go to the Debit side of that particular Ledger account.
Write the date of the transaction.
In the “Particulars” column, write “To” followed by the name of the credited account from the Journal entry.
Enter the amount.
Write the Journal page number in the J.F. column.
- When an account is Credited in the Journal:
Go to the Credit side of that particular Ledger account.
Write the date of the transaction.
In the “Particulars” column, write “By” followed by the name of the debited account from the Journal entry.
Enter the amount.
Write the Journal page number in the J.F. column.
The words “To” and “By” are traditionally used to distinguish debit entries from credit entries within a ledger account, but they do not have a separate meaning beyond that. “To” is used on the debit side, and “By” is used on the credit side.
Illustration 1:
Journalize the following transactions and post them to the Ledger accounts:
- 2025 Jan 1: Commenced business with cash ₹ 50,000.
- 2025 Jan 3: Purchased goods for cash ₹ 10,000.
- 2025 Jan 5: Sold goods for cash ₹ 15,000.
- 2025 Jan 7: Paid rent ₹ 2,000.
Solution 1:
Journal Entries
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 2025 Jan 1 | Cash A/c Dr. | 50,000 | ||
| To Capital A/c | 50,000 | |||
| (Being business commenced with cash) | ||||
| 2025 Jan 3 | Purchases A/c Dr. | 10,000 | ||
| To Cash A/c | 10,000 | |||
| (Being goods purchased for cash) | ||||
| 2025 Jan 5 | Cash A/c Dr. | 15,000 | ||
| To Sales A/c | 15,000 | |||
| (Being goods sold for cash) | ||||
| 2025 Jan 7 | Rent A/c Dr. | 2,000 | ||
| To Cash A/c | 2,000 | |||
| (Being rent paid) |
Ledger Accounts
- Cash Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Jan 1 | To Capital A/c | J1 | 50,000 | 2025 Jan 3 | By Purchases A/c | J1 | 10,000 |
| 2025 Jan 5 | To Sales A/c | J1 | 15,000 | 2025 Jan 7 | By Rent A/c | J1 | 2,000 |
| 2025 Jan 31 | By Balance c/d | 53,000 | |||||
| Total | 65,000 | Total | 65,000 | ||||
| 2025 Feb 1 | To Balance b/d | 53,000 |
- Capital Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Jan 31 | To Balance c/d | 50,000 | 2025 Jan 1 | By Cash A/c | J1 | 50,000 | |
| Total | 50,000 | Total | 50,000 | ||||
| 2025 Feb 1 | By Balance b/d | 50,000 |
- Purchases Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Jan 3 | To Cash A/c | J1 | 10,000 | 2025 Jan 31 | By Balance c/d | 10,000 | |
| Total | 10,000 | Total | 10,000 | ||||
| 2025 Feb 1 | To Balance b/d | 10,000 |
- Sales Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Jan 31 | To Balance c/d | 15,000 | 2025 Jan 5 | By Cash A/c | J1 | 15,000 | |
| Total | 15,000 | Total | 15,000 | ||||
| 2025 Feb 1 | By Balance b/d | 15,000 |
- Rent Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Jan 7 | To Cash A/c | J1 | 2,000 | 2025 Jan 31 | By Balance c/d | 2,000 | |
| Total | 2,000 | Total | 2,000 | ||||
| 2025 Feb 1 | To Balance b/d | 2,000 |
Illustration 2:
Journalize the following transactions and post them to the Ledger accounts:
- 2025 Feb 1: Purchased furniture for cash ₹ 8,000.
- 2025 Feb 5: Bought goods from Ram on credit ₹ 12,000.
- 2025 Feb 8: Sold goods to Sita on credit ₹ 9,000.
- 2025 Feb 12: Paid to Ram ₹ 12,000.
- 2025 Feb 15: Received cash from Sita ₹ 9,000.
Solution 2:
Journal Entries
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 2025 Feb 1 | Furniture A/c Dr. | 8,000 | ||
| To Cash A/c | 8,000 | |||
| (Being furniture purchased for cash) | ||||
| 2025 Feb 5 | Purchases A/c Dr. | 12,000 | ||
| To Ram’s A/c | 12,000 | |||
| (Being goods purchased from Ram on credit) | ||||
| 2025 Feb 8 | Sita’s A/c Dr. | 9,000 | ||
| To Sales A/c | 9,000 | |||
| (Being goods sold to Sita on credit) | ||||
| 2025 Feb 12 | Ram’s A/c Dr. | 12,000 | ||
| To Cash A/c | 12,000 | |||
| (Being cash paid to Ram) | ||||
| 2025 Feb 15 | Cash A/c Dr. | 9,000 | ||
| To Sita’s A/c | 9,000 | |||
| (Being cash received from Sita) |
Ledger Accounts
- Cash Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Feb 1 | To Balance b/d | (from Q1) | 2025 Feb 1 | By Furniture A/c | J2 | 8,000 | |
| 2025 Feb 15 | To Sita’s A/c | J2 | 9,000 | 2025 Feb 12 | By Ram’s A/c | J2 | 12,000 |
| 2025 Feb 28 | By Balance c/d | (Balancing Figure) | |||||
| Total | (Total) | Total | (Total) | ||||
| 2025 Mar 1 | To Balance b/d | (Balancing Figure) | |||||
| (Assuming Cash A/c had a balance of ₹ 53,000 from Q1) | |||||||
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Feb 1 | To Balance b/d | 53,000 | 2025 Feb 1 | By Furniture A/c | J2 | 8,000 | |
| 2025 Feb 15 | To Sita’s A/c | J2 | 9,000 | 2025 Feb 12 | By Ram’s A/c | J2 | 12,000 |
| 2025 Feb 28 | By Balance c/d | 42,000 | |||||
| Total | 62,000 | Total | 62,000 | ||||
| 2025 Mar 1 | To Balance b/d | 42,000 |
- 2. Furniture Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Feb 1 | To Cash A/c | J2 | 8,000 | 2025 Feb 28 | By Balance c/d | 8,000 | |
| Total | 8,000 | Total | 8,000 | ||||
| 2025 Mar 1 | To Balance b/d | 8,000 |
- Purchases Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Feb 5 | To Ram’s A/c | J2 | 12,000 | 2025 Feb 28 | By Balance c/d | 12,000 | |
| Total | 12,000 | Total | 12,000 | ||||
| 2025 Mar 1 | To Balance b/d | 12,000 |
- Ram’s Account (Creditor)
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Feb 12 | To Cash A/c | J2 | 12,000 | 2025 Feb 5 | By Purchases A/c | J2 | 12,000 |
| Total | 12,000 | Total | 12,000 |
- Sita’s Account (Debtor)
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Feb 8 | To Sales A/c | J2 | 9,000 | 2025 Feb 15 | By Cash A/c | J2 | 9,000 |
| Total | 9,000 | Total | 9,000 |
- Sales Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Feb 28 | To Balance c/d | 9,000 | 2025 Feb 8 | By Sita’s A/c | J2 | 9,000 | |
| Total | 9,000 | Total | 9,000 | ||||
| 2025 Mar 1 | By Balance b/d | 9,000 |
Illustration 3:
Journalize the following transactions and post them to the Ledger accounts:
- 2025 Mar 1: Paid salaries ₹ 5,000.
- 2025 Mar 8: Received commission ₹ 1,500.
- 2025 Mar 15: Withdrew cash for personal use ₹ 3,000.
- 2025 Mar 20: Paid electricity bill ₹ 1,000.
Solution 3:
Journal Entries
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 2025 Mar 1 | Salaries A/c Dr. | 5,000 | ||
| To Cash A/c | 5,000 | |||
| (Being salaries paid) | ||||
| 2025 Mar 8 | Cash A/c Dr. | 1,500 | ||
| To Commission Received A/c | 1,500 | |||
| (Being commission received) | ||||
| 2025 Mar 15 | Drawings A/c Dr. | 3,000 | ||
| To Cash A/c | 3,000 | |||
| (Being cash withdrawn for personal use) | ||||
| 2025 Mar 20 | Electricity Expenses A/c Dr. | 1,000 | ||
| To Cash A/c | 1,000 | |||
| (Being electricity bill paid) |
Ledger Accounts
- Cash Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Mar 1 | To Balance b/d | 42,000 | 2025 Mar 1 | By Salaries A/c | J3 | 5,000 | |
| 2025 Mar 8 | To Commission Received A/c | J3 | 1,500 | 2025 Mar 15 | By Drawings A/c | J3 | 3,000 |
| 2025 Mar 20 | By Electricity Exp. A/c | J3 | 1,000 | ||||
| 2025 Mar 31 | By Balance c/d | 34,500 | |||||
| Total | 43,500 | Total | 43,500 | ||||
| 2025 Apr 1 | To Balance b/d | 34,500 |
- Salaries Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Mar 1 | To Cash A/c | J3 | 5,000 | 2025 Mar 31 | By Balance c/d | 5,000 | |
| Total | 5,000 | Total | 5,000 | ||||
| 2025 Apr 1 | To Balance b/d | 5,000 |
- Commission Received Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Mar 31 | To Balance c/d | 1,500 | 2025 Mar 8 | By Cash A/c | J3 | 1,500 | |
| Total | 1,500 | Total | 1,500 | ||||
| 2025 Apr 1 | By Balance b/d | 1,500 |
- Drawings Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Mar 15 | To Cash A/c | J3 | 3,000 | 2025 Mar 31 | By Balance c/d | 3,000 | |
| Total | 3,000 | Total | 3,000 | ||||
| 2025 Apr 1 | To Balance b/d | 3,000 |
- Electricity Expenses Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| 2025 Mar 20 | To Cash A/c | J3 | 1,000 | 2025 Mar 31 | By Balance c/d | 1,000 | |
| Total | 1,000 | Total | 1,000 | ||||
| 2025 Apr 1 | To Balance b/d | 1,000 |
Trial Balance: The Trial Balance is a crucial statement in accounting that is prepared after all transactions have been journalized and posted to the Ledger accounts and those accounts have been balanced. It’s essentially a summary of all the ledger balances.
Ledger account which shows a debit balance is put on the debit side of the trial balance and the account which shows a credit balance is put on the credit side of the trial balance.