Ledger
Meaning of Ledger and the Posting Process
The journal records transactions in date order, but it cannot quickly tell us "how much cash do we have?" or "how much does Ram owe?" For that we need the ledger — the book of accounts, also called the book of final entry or the "king of the books." It collects together, at one place, all entries relating to each account.
Each account in the ledger has a T-shape: the left side is the debit (Dr) side, the right side is the credit (Cr) side. The standard format has columns for Date, Particulars, J.F. (journal folio) and Amount on each side.
Posting is the process of transferring entries from the journal to the ledger. The rules are simple and mechanical:
- The account debited in the journal is posted on the debit side of its ledger account, written as "To [the other account]."
- The account credited in the journal is posted on the credit side of its ledger account, written as "By [the other account]."
So if the journal entry is "Furniture A/c Dr 20,000 / To Cash A/c 20,000," we post "To Cash 20,000" on the debit side of the Furniture account, and "By Furniture 20,000" on the credit side of the Cash account. The same amount appears in two accounts, on opposite sides — that is double entry in action.
It comes after the journal.
- Transactions first go to the journal (original entry).
- They are then posted to the ledger, the final place where each account is gathered.
Cash was credited.
- Cash is credited → post on the credit side.
- Wording: 'By Salary A/c'.
Debit-side wording.
- 'To' is written before items appearing on the debit side of an account.
Key Points
- Ledger = book of accounts / book of final entry; each account is a T (Dr left, Cr right).
- Posting: account debited in the journal → debit side ('To…'); account credited → credit side ('By…').
- Every amount appears in two accounts on opposite sides (double entry).
Balancing of Accounts
After posting, each account is balanced to find out how much is left in it. Balancing means totalling both sides and finding the difference.
The steps:
- Total the debit side and the credit side roughly (in the mind/margin).
- Find the difference and write it on the shorter side as "Balance c/d" (carried down) so that both sides become equal.
- Total both sides (they now match) and rule them off.
- Bring the balance down on the opposite side as "Balance b/d" (brought down) — this is the opening balance for the next period.
The nature of the balance tells us about the account:
- A debit balance (debit side bigger) appears in assets, expenses and the drawings account. (Cash, debtors, machinery normally have debit balances.)
- A credit balance (credit side bigger) appears in liabilities, capital and income accounts. (Creditors, capital, bank loan normally have credit balances.)
Two practical notes: (i) Nominal accounts (expenses/incomes) are usually not balanced — they are closed by transfer to the Trading or Profit & Loss Account at year-end. (ii) An account whose two sides are equal has a nil balance and needs no balancing.
Debit side is bigger.
- Balance = 90,000 − 65,000 = 25,000.
- Debit side bigger → debit balance (an asset).
On the shorter side.
- It is written on the side with the smaller total.
- This makes both totals equal so the account can be ruled off.
A liability.
- A creditor is a liability (we owe them).
- Liabilities have credit balances.
Key Points
- Balancing: total both sides, put the difference on the shorter side as Balance c/d, then bring it down as Balance b/d.
- Debit balance → assets, expenses, drawings. Credit balance → liabilities, capital, incomes.
- Nominal accounts are closed (transferred to Trading/P&L), not balanced.
Preparing a Ledger from the Journal
Putting it together: given journal entries, we post each to the ledger and balance the accounts. Take three entries:
- Started business with cash Rs 50,000 → Cash A/c Dr / To Capital A/c.
- Bought goods for cash Rs 20,000 → Purchases A/c Dr / To Cash A/c.
- Paid rent Rs 5,000 → Rent A/c Dr / To Cash A/c.
The Cash Account collects everything touching cash:
| Dr — Cash Account — Cr | |
|---|---|
| To Capital A/c 50,000 | By Purchases A/c 20,000 |
| By Rent A/c 5,000 | |
| By Balance c/d 25,000 | |
| 50,000 | 50,000 |
| To Balance b/d 25,000 | |
The cash account shows a debit balance of Rs 25,000 (cash in hand). The other accounts are simpler — the Capital account has only "By Cash 50,000" (credit balance Rs 50,000), Purchases has "To Cash 20,000," and Rent has "To Cash 5,000."
This is the heart of book-keeping: journalise → post → balance. Once all accounts are balanced, the closing balances are listed in a trial balance — the subject of the next chapter — to check that the books agree.
Only one entry, on the credit side.
- Capital A/c has 'By Cash 50,000' on the credit side.
- So it shows a credit balance of Rs 50,000.
Difference on the shorter side.
- 50,000 − 25,000 = 25,000 on the credit side as Balance c/d.
Three steps.
- Journalise the transaction, post it to the ledger, then balance the account.
Key Points
- Post each journal entry to its ledger accounts, then balance them.
- The Cash A/c gathers all cash receipts (Dr) and payments (Cr); its balance is cash in hand (a debit balance).
- Flow: journalise → post → balance; closing balances feed the trial balance.