📚 Understanding Ledger Accounts
A Comprehensive Guide to Ledger, Posting & Balancing
1. What is a Ledger?
Definition: A ledger is the principal book of accounts that contains all the accounts of a business. It is often called the "Book of Final Entry" because all transactions from the journal are ultimately transferred (posted) to the ledger.
Key Features:
- Classified Record: Groups similar transactions together under specific account heads
- Permanent Record: Maintains a complete history of each account
- Facilitates Trial Balance: Helps in preparing trial balance and financial statements
- Individual Accounts: Separate page or section for each account (Assets, Liabilities, Income, Expenses)
2. Format of Ledger Account
The standard format of a ledger account is the "T-Format" with two sides:
Standard Ledger Account Format
| Name of Account | |||||
|---|---|---|---|---|---|
| Debit Side (Dr.) | Credit Side (Cr.) | ||||
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| DD/MM/YY | To [Account Name] | XXX | DD/MM/YY | By [Account Name] | XXX |
Golden Rules for Posting:
Personal Accounts
Debit: The Receiver
Credit: The Giver
Real Accounts
Debit: What Comes In
Credit: What Goes Out
Nominal Accounts
Debit: All Expenses & Losses
Credit: All Incomes & Gains
3. Posting from Journal to Ledger
Posting is the process of transferring entries from the Journal (Book of Original Entry) to the respective accounts in the Ledger.
Example 1: Simple Journal Entry Posting
Journal Entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 01/04/2025 | Cash A/c Dr. | 1 | 50,000 | |
| To Capital A/c | 2 | 50,000 | ||
| (Being capital introduced in business) | ||||
Posted to Ledger:
| Cash Account | |||||
|---|---|---|---|---|---|
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 01/04/2025 | To Capital A/c | 50,000 | |||
| Capital Account | |||||
|---|---|---|---|---|---|
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 01/04/2025 | By Cash A/c | 50,000 | |||
Example 2: Multiple Transaction Posting
Journal Entries:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 05/04/2025 | Furniture A/c Dr. | 3 | 15,000 | |
| To Cash A/c | 1 | 15,000 | ||
| (Being furniture purchased for cash) | ||||
| 10/04/2025 | Purchases A/c Dr. | 4 | 25,000 | |
| To Supplier A/c | 5 | 25,000 | ||
| (Being goods purchased on credit) | ||||
Posted to Ledger:
| Furniture Account | |||||
|---|---|---|---|---|---|
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 05/04/2025 | To Cash A/c | 15,000 | |||
| Purchases Account | |||||
|---|---|---|---|---|---|
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 10/04/2025 | To Supplier A/c | 25,000 | |||
4. Posting from Subsidiary Books
Subsidiary books are specialized journals used to record specific types of transactions. Common subsidiary books include:
- Sales Book / Sales Day Book
- Purchase Book / Purchase Day Book
- Sales Return Book / Return Inward Book
- Purchase Return Book / Return Outward Book
- Cash Book
Example 3: Posting from Sales Book
Sales Book:
| Date | Invoice No. | Customer Name | L.F. | Amount (₹) |
|---|---|---|---|---|
| 15/04/2025 | INV-101 | Ramesh & Co. | 6 | 12,000 |
| 18/04/2025 | INV-102 | Suresh Traders | 7 | 18,500 |
| 22/04/2025 | INV-103 | Mahesh Enterprises | 8 | 20,300 |
| Total | 50,800 | |||
Posted to Ledger:
| Ramesh & Co. Account | |||||
|---|---|---|---|---|---|
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 15/04/2025 | To Sales A/c | 12,000 | |||
| Sales Account | |||||
|---|---|---|---|---|---|
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 30/04/2025 | By Sundry Debtors A/c | 50,800 | |||
Note: Individual debtor accounts are debited separately, while Sales Account is credited with the total at the end of the period.
5. Balancing of Accounts
Balancing is the process of finding the difference between the total of debit side and credit side of an account. This is done periodically (monthly, quarterly, or annually).
Steps to Balance an Account:
- Total both debit and credit sides of the account
- Find the difference between the two sides
- Write the difference on the side with lesser amount as "By Balance c/d" (carried down) or "To Balance c/d"
- Make both sides equal
- Draw double lines under the totals
- Bring down the balance on the opposite side as "To Balance b/d" (brought down) or "By Balance b/d"
Example 4: Balancing Cash Account
| Cash Account | |||||
|---|---|---|---|---|---|
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 01/04/2025 | To Capital A/c | 50,000 | 05/04/2025 | By Furniture A/c | 15,000 |
| 20/04/2025 | To Sales A/c | 30,000 | 12/04/2025 | By Rent A/c | 8,000 |
| 28/04/2025 | To Interest A/c | 2,500 | 25/04/2025 | By Salary A/c | 12,000 |
| 30/04/2025 | By Balance c/d | 47,500 | |||
| Total | 82,500 | Total | 82,500 | ||
| 01/05/2025 | To Balance b/d | 47,500 | |||
Interpretation: Cash balance of ₹47,500 is carried forward to the next period.
Example 5: Balancing a Creditor's Account
| Supplier Account (XYZ Traders) | |||||
|---|---|---|---|---|---|
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
| 15/04/2025 | To Cash A/c | 20,000 | 10/04/2025 | By Purchases A/c | 25,000 |
| 30/04/2025 | To Balance c/d | 5,000 | 22/04/2025 | By Purchases A/c | 15,000 |
| 28/04/2025 | By Purchases A/c | 10,000 | |||
| 29/04/2025 | By Purchase Return A/c | 25,000 | |||
| Total | 25,000 | Total | 25,000 | ||
| 01/05/2025 | By Balance b/d | 5,000 | |||
Interpretation: We owe ₹5,000 to XYZ Traders (Creditor balance).
📝 Practice Questions
Test your understanding with these practice questions. Click "Show Solution" to reveal the answers.
Question 1: Basic Posting
On 5th May 2025, Amit started a business with cash ₹1,00,000. On 8th May, he purchased goods for cash ₹40,000. On 12th May, he paid rent ₹5,000.
Required: Prepare the Cash Account and balance it.
Question 2: Posting from Journal
Following transactions occurred in May 2025:
- May 1: Purchased machinery for ₹80,000 on credit from Modern Machines Ltd.
- May 15: Paid ₹30,000 to Modern Machines Ltd.
- May 25: Received discount ₹2,000 from Modern Machines Ltd.
Required: Prepare the Machinery Account and Modern Machines Ltd. Account.
Question 3: Posting from Sales Book
The Sales Book of Rajesh Traders shows the following for May 2025:
| Date | Customer | Amount (₹) |
|---|---|---|
| May 3 | Vinay & Sons | 35,000 |
| May 10 | Ajay Enterprises | 42,000 |
| May 20 | Sanjay Traders | 28,000 |
Required: Post these entries to the Sales Account.
Question 4: Comprehensive Balancing
Prepare and balance the Salary Account from the following information for April 2025:
- April 1: Outstanding salary brought forward ₹8,000
- April 5: Paid salary by cash ₹15,000
- April 20: Paid salary by cash ₹15,000
- April 30: Salary for the month is ₹30,000 but paid only ₹28,000
Required: Prepare the Salary Account.
📚 Summary
Key Takeaways:
- Ledger is the principal book where all accounts are maintained in classified form
- Posting is the process of transferring journal entries to respective ledger accounts
- Subsidiary Books help in recording specific types of transactions efficiently
- Balancing determines the net effect of all transactions in an account
- Debit Balance indicates assets and expenses, while Credit Balance indicates liabilities, capital, and income
- Every debit entry must have a corresponding credit entry (Double Entry System)
- Proper ledger maintenance is essential for preparing Trial Balance and Financial Statements