General ledger – Definition, Format, Process and Example

Tally Solutions | Jan-24-2020

• Introduction
• What is general ledger?
• Specimen of ledger accounts
• Steps to prepare general ledger
  • Posting
  • Balancing an account
• Example of general ledgers

Introduction 

After passing the entries in journal-register, the transactions are classified and grouped for 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 account-wise balance of each account is determined.

What is general ledger?

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.

Specimen of ledger accounts 

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 i.e. reference number of the page from where the entries are taken for posting and
• Amount

Steps to prepare general ledger

Posting

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

1. A separate individual account is opened in ledger book for each account and entries from ledger are posted to respective accounts accordingly.
2. It is a practice to use words ‘To’ and ‘By’ or ‘Dr’ or ‘Cr’ while posting transactions in the ledger. The word ‘To’ or ‘Dr’ is used in the particular column with the accounts written on the debit side while ‘By’ or 'Cr' is used with the accounts written in the particular column of the credit side.
3. The concerned account debited in the journal should also be debited in the ledger, but reference should be of the respective credit account.

Balancing an account:

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 taka, he owes 150 Bangladeshi taka 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 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 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.

Examples of general ledger

ABC and Co., a partnership firm registered in Kenya had following entries to be posted in its ledger books.

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)

Once the posting is done, the next step balancing of accounts. This step will help you determine the closing balance of ledger accounts for a given period. In above example, we need to find out the closing balance of Raw material A/C (Indicated with question mark(?))

Balancing of accounts in books of ABC and Co.,

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)