Ledger in Accounting

What is Ledger in Acounting?

Ledger in accounting book is called the second book of entry; because after recording the entry into the journal, it is recorded in the ledger. In ledger, the accountant doesn’t need to write a narration. The accountant needs to create a “T” format and then record the journal entries account wise.

The purpose of ledger is to summarize all the journal entries so that they can be used for future reference and for creating financial statements.

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Now let’s look at the examples. For ease of understanding the meaning of ledger in accounting, we will take the same examples we took in the case of journal and will put them in the right format.

Ledger in Accounting Examples & Formats

Here are four examples of ledger in accounting book below –

Ledger in Accounting Book Example#1

Mr M buys goods in cash. What would be the ledger entry in accounting?

Here the journal entry is –

Purchase A/C…..Debit

To Cash A/C…..Credit

Here, we will have two accounts – “purchase” account and “cash” account.

Purchase A/C

Dr                                                                                                                                         Cr

Date	Particulars	Amount ($)	Date	Particulars	Amount
9.9.17	To Cash A/C	10,000

Cash A/C

Dr                                                                                                                                         Cr

Date	Particulars	Amount ($)	Date	Particulars	Amount
			9.9.17	By Purchase A/C	10,000

Ledger in Accounting Book Example#2

G Co. sells goods in cash. Which account will be debited and which account will be credited?

In this case, the journal entry is –

Cash A/C……Debit

To Sales A/C…..Credit

The ledger accounts for this journal entry would be as follows –

Cash A/C

Dr                                                                                                                                         Cr

Date	Particulars	Amount ($)	Date	Particulars	Amount
11.9.17	To Sales A/C	50,000

Sales A/C

Dr                                                                                                                                         Cr

Date	Particulars	Amount ($)	Date	Particulars	Amount
			11.9.17	By Cash A/C	50,000

 

Ledger in Accounting Example#3

Mr U pays off his long term debt in cash. What would be the ledger entry?

In this example, the journal entry is –

Long term debt A/C……Debit

To Cash A/C……..Credit

The ledger for this journal entry would be as follows –

Long Term Debt A/C

Dr                                                                                                                                         Cr

Date	Particulars	Amount ($)	Date	Particulars	Amount
14.9.17	To Cash A/C	100,000

Cash A/C

Dr                                                                                                                                         Cr

Date	Particulars	Amount ($)	Date	Particulars	Amount
			14.9.17	By Long Term Debt A/C	100,000

Ledger in Accounting Example#4

More capital is being invested into the company in the form of cash.

In this example, the journal entry is –

Cash A/C……Debit

To Capital A/C……Credit

The ledger entry for this journal entry would be as follows –

Cash A/C

Dr                                                                                                                                         Cr

Date	Particulars	Amount ($)	Date	Particulars	Amount
15.9.17	To Capital A/C	200,000

Capital A/C

Dr                                                                                                                                         Cr

Date	Particulars	Amount ($)	Date	Particulars	Amount
			15.9.17	By Cash A/C	200,000

One thing should be mentioned here. In normal situations, we need to balance the ledgers. But since we don’t have the full information about the last transaction of the year (or a particular period), we have kept the ledger accounts open.

When we balance the account, we use “balance c/d” which means that the balance has been carried down in the next period. So that means the account is balanced until this period and we can transfer it to the trial balance, income statement, and balance sheet for that particular period, usually a year.

Ledger in accounting book is a source of trial balance, income statement, and balance sheet

Ledger in its truest sense is a source of all other financial statements. By looking at the ledger, one can understand what transactions are recorded, what happened during a particular period, and how one look at a company should.

For example, by balancing the ledger, we will either have debit balance or credit balance in each account. These accounts are then taken into account and a trial balance is made to see whether two sides (debit and credit) are matching. If the two sides don’t match, the accountant needs to see through the entries and find out whether there is an error in recording transactions. If the accountant isn’t able to find the error immediately, an account is created to balance two sides. It is called “suspense” account. This “suspense” account can be on the debit side or on the credit side, depending upon which side is lower than the other.

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This has been a guide to what is Ledger in Accounting Book? Here we discuss format and ledger in accounting examples and how ledger is a source of trial balance, income statement and balance sheet. You may also have read through our other articles on basic accounting –

• Depreciation in Journal Entry
• Meaning of Petty Cash Book
• Financial Statements Types
• What is Financial Accounting?
• Petty Cash | Meaning | Template | Accounting | Example
• Credit Note
• Basic Accounting Training