Examples of Ledger Account
The following Ledger accounts example provides an outline of the most common Ledgers. The ledger accounts are the separate records of the business transactions carried by an entity that is prepared using the reference of the daily journal entries and are related to a specific account, which can be an asset or a liability, capital or equity, expense item, or revenue item.
Basically, a ledger accountLedger AccountLedger in Accounting, also called the Second Book of Entry, is a book that summarizes all the journal entries in the form of debits & credits to use for future reference & create financial statements. contains information about the opening and the closing balances of a particular account and the periodical debit and credit adjustments on the basis of journal entries prepared on a daily basis. The most important information that a ledger account provides is the periodical (usually annual) closing balances about a specific item or account. The ledger accounts are essential in the formation of trial balances and also the financial statements of the companyFinancial Statements Of The CompanyFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels..
Common Examples of Ledger Accounts
Some common examples of ledger accounts are:
- Fixed AssetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.
- Accounts ReceivableAccounts ReceivableAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.
- Accounts PayableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.
- Accrued ExpensesAccrued ExpensesAn accrued expense is the expenses which is incurred by the company over one accounting period but not paid in the same accounting period. In the books of accounts it is recorded in a way that the expense account is debited and the accrued expense account is credited.
- Sales or Revenue
- DividendDividendDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company.
- Interest IncomeInterest IncomeInterest Income is the amount of revenue generated by interest-yielding investments like certificates of deposit, savings accounts, or other investments & it is reported in the Company’s income statement.
- OpexOpexOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.
- Administrative ExpensesAdministrative ExpensesAdministrative expenses are indirect costs incurred by a business that are not directly related to the manufacturing, production, or sale of goods or services provided, but are necessary for the smooth functioning of business operations, such as information technology, finance & accounts.
Practical Examples of Ledger Accounts
In order to better understand the working of ledger accounts, let’s discuss some ledger accounts examples:-
Mr. John Wick wants to start a new clothing business. He has a total sum of $100,000 in his savings that can be invested. He owns a small shop at a primary location that can be used to start a retail clothing outlet. For the store, he purchased furniture, including shelves, a counter desk, and other equipment for $15,000. He also hires a staff of two for customer support and other office work for $5,000 each.
Mr. Wick decided to start with men’s clothing and purchased a complete range of men clothes from the wholesale market, which costs him around $75,000. The initial purchase got sold in a period of not more than one month for a total of $95000.
Mr. Wick wants to journalize these transactions and create ledger accounts for the month of April 2019.
- Journal Entries
- Ledger Accounts Example
David Baker wants to start a forging factory, where he can manufacture high-quality chef and military knives. On January 1, 2018, he invested a sum of $1,000,000 as capital and started The Damascus Forging Works. He took a bank loan of $750,000 at 5% PA and invested the remaining amount of $250,000 from his own savings. He opened a current account and deposited $800,000.
Afterward, he made the following transactions.
- On Jan 2, he rented a factory in the nearby industrial area for $20,000 per month and deposited $100,000 in advance by cheque.
- On Jan 4, Mr. Baker purchased the necessary machinery for $500,000, paid by cheque.
After setting up the factory, he started production from 5thJan, and following transactions took place during the 1st year:-
Since Mr. Baker maintained all the accounting records himself, he wants our help to create ledger accounts for the firm.
The ledger accounts:-
This has been a guide to Ledger Account Examples. Here we discuss the most common examples of ledger account along with journal entry and explanations. You can learn more about financing from the following articles –