What is a Ledger Account?
Ledger is a book of account that contains a condensed and classified record for all transactions of the business posted from the journal. It is also called the book of last entry.
In this book, Separate accounts are opened for each account head and all transactions relating to a particular account head will be posted in that concerned account.
An account for each person, each type of revenue, expense, asset, and liability is opened in the ledger.
Ledger is generally maintained in the form of a noun register having special ruling on each page.
Definition Of Ledger Account :
According to William Pickles ‘A ledger account is the most important book of account and is the destination of the entries made in subsidiary books.
According to the author Field house, ‘A ledger is a permanent storehouse of all the transactions.
In other words, A ledger is the principal book of the account that provides complete information about various transactions relating to all parties and all items of assets, revenue and expenses.
Features Of Ledger Account :
Features of Ledger account are :
A) Two sides: A ledger account has two sides, namely the left-hand side, and the right-hand side. Left-hand sides are called the Debit side while the right-hand side is called the credit side.
B) Recording Of two aspects: Posting is made on the debit side of the ledger account which has been debited in the journal and the right-hand side is called the credit side.
C) Balancing: Each record in the ledger is freely balanced. This is done by ascertaining the difference between the total of the debit side and the total of the credit side.
Importance Of Ledger Account :
The main importance of ledger accounts are:-
1. Condensation of Scatterinformation: The ledger brings out the scattered information from the journal. It shows the condensed information under each account head.
2. Full Information at a glance: As the ledger records both the debit and credit aspects in two different sites, the complete position of an account can be ascertained at a glance.
3. Balance: At the end of a specified period, the net effect of transactions on a particular account head can be ascertained by finding out the balance of that account.
4. Trial Balance: As both aspects are recorded, the net debit effect and the net credit effect on the accounts must be equal on a particular date. This is verified by preparing a statement called the trial statement.
5. Preparation of Final Accounts: Ledger is the storehouse of all information relating to the transactions. It facilitates the preparation of a trading and profit and loss account from the balance of revenue and expenses accounts.
It also facilitates the preparation of balance sheet from the balance of assets, liabilities and capital account.
Objectives Of Ledger Accounts :
The main objectives of the ledger account are :
1. Information regarding debtors: A trader can know the amount of money receivable from various customers and others who are known as debtors.
2. Information regarding creditors: A trader can know the amount of money payable to various suppliers and others who are known as creditors.
3. Information regarding purchase & sales: The total purchase of goods and the total sale of goods during a specific period can be known by preparing purchase and sales account.
4. Information regarding Revenue & expenses: The amount of revenue earned from different sources and the number of expenses incurred on different accounts heads for a particular period may be known from the ledger.
5. Information regarding Assets & Liabilities: The number of various types of assets such as land, Building, Machinery, cash in hand, cash at bank, etc. and the number of various liabilities can be obtained from the ledger.
Sub-division of Ledger:
The sub-division of the ledgers varies to the sizes of the business. Ledgers are primarily sub-divided into :
A. Personal Ledger And
B. General or Normal Ledger
A. Personal Ledger:
The ledger which contains the accounts of persons, firm or organization to whom goods are sold on credit or from whom goods are bought on credit is known as a personal ledger.
Types of Personal Ledger:
I. Debtors ledger or sales ledger and
II. Creditors Ledger or Bought ledger
I. Debtors ledger or sales ledger: In this ledger, the accounts of all debtors for goods are maintained. Posting is made from sales Daybook, purchase returns the book, cash book, bill payable book and journal proper for the transactions affecting the accounts of debtors.
II. Creditors Ledger or Bought ledger: In this ledger, the accounts of all creditors for goods are maintained. Posting is made from purchases day book, purchase returns the book, cash book, bills payable book and journal proper for the transactions affecting the accounts of credits. Open book with figures and paper with words accounts receivable.
B. General Or Normal ledger:
This ledger contains all accounts other than the accounts of debtors and creditors for goods. All accounts falling in the category of assets, liabilities, capital, revenue, and expenses are maintained in this ledger.
Format Of a Ledger Account :
There are two forms of Ledger Account :
- Vertical or “T” shape form
- Horizontal form
Frequently Questions And Answers :
1. Why ledger is known as the King of all the books of accounts?
Ans: Ledger is called the king of all the books of accounts because it is the book that alone can exhibit the position of each account head in a convenient form.
2. What is the Trial balance?
Ans: The net debit effect and the net credit effect on the accounts must be equal on a particular date.