WHAT IS JOURNAL & LEDGER?

LEDGER

Meaning of a Ledger: Earlier, we discussed the term Account. In an account, transactions of one nature are posted or summarised. All the accounts put together constitute a ‘Ledger’. A Ledger may be defined as a “book or register which contains, in a summarised and classified form, a permanent record of all transactions.” It is the most important book of accounts, since the Trial Balance is drawn from it and from the Trial Balance, Financial Statements are prepared. Hence, the Ledger is called the Principal Book.

Features

(i) The Ledger is a master record of all the accounts of a business firm.

(ii) It is prepared from Journal.

(iii) Ledger Accounts show the current balance in all accounts.

(iv) Trial Balance and Final Accounts are prepared from Ledger Accounts.

(v) Ledger Accounts summarise the effect of transactions upon assets, liabilities, capital, incomes and expenditures.

Utility of a Ledger: A Ledger is the Principal Book of accounts which contains all information regarding business transactions in the form of an account. If we want instant information about any account, it cannot be provided by the Journal, as it is a chronological record of business transactions. Following are the important information required in business time to time:

• How much amount is due from a particular customer?
• How much amount is owed to a particular supplier?
• How much is the amount of purchase and sales during a given period?
• How much amount has been incurred on a particular head of expenditure?
• How much amount has been earned on account of a particular head of income?

It is the classified record in the Ledger, which can provide answer to the above questions because all the transactions relating to a particular account are classified on a particular folio in the Ledger.

Personal Accounts in a Ledger show how much money the firm owes to creditors and the amounts it has to recover from debtors. The Real Accounts show the values of assets and also the value of stock. Nominal Accounts reflect the sources of income and also the amount spent on various items.

Ledger is the basis of preparing the Trial Balance which helps in ascertaining the arithmetical accuracy of the accounts. For preparing the Final Accounts, we need

‘Trial Balance which is based on Ledger balances. Thus, without Ledger, Profit and Loss Account and Balance Sheet cannot be prepared.

Form of a Ledger Account: The form of this account was explained in an earlier Post For convenience, the form of account is repeated here.

NAME OF THE ACCOUNT, e.g., WAGES ACCOUNT