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After passing the entries in the journal-register, the transactions are classified and grouped for the preparation of accounts. The principal book which contains all set of accounts (viz. nominal, personal and real accounts), is known as Ledger. It is also known as principal books of account in which the account-wise balance of each account is determined.
General Ledger is a process of summarizing all the financial transaction of an account for a given period in a prescribed format with the objective to ascertain the closing balance at the end of the given period.
Ledger account and general ledger account are interchangeably used to denote the account report that contains a record of all business transactions related to an account. For every account, you deal with, a separate ledger account is prepared that summarizes the closing balance for a given period. For example, for all transactions related to a bank, a bank ledger account is prepared.
Some of the most common ledger accounts are: bank account, bank cash, debtors, creditors, fixed assets, and more.
A ledger accounting is an account or record utilized to keep bookkeeping entries for balance-sheet and income-statement transactions. Some of the entries for the accounting ledger includes cash, accounts receivable, investments, inventory, accounts payable and more. They are maintained for all sorts of balance sheet and income statement transactions.
A general ledger account has two sides debit (left part of the account) and credit (right part of the account). Each of the general ledgers debit and credit side has four columns.
Date |
Particulars |
Journal Folio |
Amount (Rs.) |
Date |
Particulars |
Journal Folio |
Amount (Rs.) |
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The methodology of transferring the debit and credit items from journal to classified accounts in the ledger is known as posting. The posting of the ledger should be followed in accordance with the rules.
Rules for posting of entries in the ledger accounts
At the end of each month or year or any particular day, it is necessary to ascertain the closing balance in an account.
This is not a too difficult thing to do; suppose a person has bought goods worth 1,000 Bangladeshi taka and has paid only 850 Bangladeshi takas, he owes 150 Bangladeshi takas and that is the closing balance in his account.
Therefore, to ascertain the balance in any account, you must total the sides and ascertain the difference. The difference is the closing balance of the account. If the credit side total is higher than the debit side total, it is a credit balance and otherwise, it is a debit balance.
The credit balance is written on the debit side as, “To Balance c/d”. Here, ‘c/d’ refers to balance carried down. By doing this, two sides will be equal. The totals of both the debit and credit side are written on the two sides opposite one another. Then the credit total balance is written on the credit side as “By balance b/d (i.e., brought down)”. This becomes the opening balance for the new period.
Similarly, the debit balance is written on the credit side as “By Balance c/d”, the totals then are written on the two sides. Just like the credit side, the total debit balance is written on the debit side as, “To Balance b/d”, as the opening balance of the new period.
Journal |
Ledger |
Journal refers to the subsidiary book of accounts that documents transactions. |
Ledger refers to the main book of accounts that categorizes transactions recorded in a journal. |
The journal transactions get documented in sequential order as per their occurrence. |
The ledger organizes the transactions from the journal under the individual related accounts. |
Each journal entry has precise details of the transaction. |
The ledger does not have details of each transaction. |
The journal doesn't provide the complete results of a transaction |
The ledger provides the result of account transactions. |
The journal doesn't have a direct role in preparing financial statements and reports like profit and loss accounts and more. |
Whereas balances from different ledgers help create statements like Profit and Loss Account or Balance Sheet. |
ABC and Co., a partnership firm registered in Kenya had the following entries to be posted in its ledger books.
2019 |
Particulars |
Amount |
Jan 1 |
Opening stock of Raw material |
320 |
May 10 |
Purchase of Raw material by cheque |
900 |
Oct 11 |
Purchase of Raw material on credit from XYZ Co., |
1,280 |
Nov 2 |
Returned goods purchased from XYZ Co., |
340 |
As discussed above, the first step in the process of preparing general ledger is posting. The following are ledger posting of ABC and Co.
Posting the above entries in the books of ABC and Co.,
(Dr). Raw Material A/c. (Cr)
Date |
Particulars |
Amount |
Date |
Particulars |
Amount |
1.1.15 |
To balance b/d |
320 |
31.12.15 |
By XYZ Co., |
340 |
10.5.15 |
To Bank |
900 |
31.12.15 |
By balance c/d |
??? |
11.10.15 |
To XYZ Co., |
1280 |
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1.1.16 |
To balance b/d. |
??? |
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Once the posting is done the next step balancing accounts. This step will help you determine the closing balance of ledger accounts for a given period. In the above example, we need to find out the closing balance of Raw material A/C (Indicated with a question mark(?))
Balancing of accounts in books of ABC and Co.,
Particulars |
Amount |
Debit side totals (320+900+1280) |
2470 |
Credit side totals |
340 |
Ideology (Debit Side total > Credit side total) then the balance is |
Debit balance |
Rule 1: Rule of balancing (Debit balance to be written on the credit side as By balance c/d which comes to) [ 2,470 ( - ) 340] |
To balance c/d = 2,130 Kenyan shillings |
Rule 2: Balances to be written on both sides (in the given example on) |
Debit Side as By balance b/d = 2,130 |
After balancing, the following is the completed general ledger account of Raw Material A/c of ABC and Co.
Dr). Raw Material A/c. (Cr)
Date |
Particulars |
Amount |
Date |
Particulars |
Amount |
1.1.15 |
To balance b/d |
320 |
31.12.15 |
By XYZ Co., |
340 |
10.5.15 |
To Bank |
900 |
31.12.15 |
By balance c/d |
2130 |
11.10.15 |
To XYZ Co., |
1280 |
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Total |
2470 |
Total |
2470 |
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1.1.16 |
To balance b/d. |
2130 |
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Watch Video on How to Create Ledgers in TallyPrime
General ledger refers to the primary accounting record of a company.
If you are using TallyPrime, you can easily create a ledger account from:
Create menu>Ledger>Provide the ledger name and other details>save
Double-entry bookkeeping refers to the concept wherein every accounting transaction affects the business’s finances in two ways. The general ledger is the record of the two sides of each transaction.
Typically, there are three types of ledger account - general, debtors, and creditors.
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