General ledger – Definition, Format, Process and Example

| Updated on: May 18, 2022


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.

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.

What is ledger account?

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. 

What is ledger accounting?  

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.  

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

Date

Particulars

Journal Folio

Amount

(Rs.)

Date

Particulars

Journal Folio

Amount

(Rs.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 the ledger book for each account and entries from the ledger are posted to respective accounts accordingly.
  2. It is a practice to use the 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 the 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 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.

What's the Difference Between a Journal and a Ledger 

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. 

 Examples of general ledger

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

 

 

 

1.1.16

To balance b/d.             

???

 

 

 

 

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

 

 

 

Total

2470

Total

2470

1.1.16

To balance b/d.             

2130

 

 

 


Watch Video on How to Create Ledgers in TallyPrime

FAQ:

What is a general ledger? 

General ledger refers to the primary accounting record of a company. 

Is a general ledger part of the double-entry bookkeeping method? 

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.  

What are the types of ledger account? 

Typically, there are three types of ledger account - general, debtors, and creditors. 

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