Role of ledger in books of account and how it is maintained

With due respect Presented to :

Presented by Sahil batra Shweya jindal Smakshi Srishti kathuria Shelly singhal

General ledger

A group of accounts for a business entity is called a ledger.

A list of the accounts in a ledger is called a chart of accounts.

Each financial statement item, called an account, is included in the ledger.

The Ledger
Items of Note
Each account has a separate page/section in the ledger For each transaction that happens in the business, we record it in the journal
THEN Post the total to the ledger

The ledger will keep a running total of each account

Major Account Classifications

Liabilities are often identified Assets are on the balance sheetare debts Liabilities by titles resources owned that include payable. owed to outsiders by the business. (creditors).

Cash Supplies Building Accounts receivable

Accounts payable Notes payable Wages payable

Major Account Classifications

Owners equity is the owners right to the assets of the business.
Chris Clark, Capital Chris Clark, Drawing Revenues are increases in owners equity as a result of selling services or products. Fees Earned Fares Earned Commission Revenue

Expenses are the using up of assets or consuming of services to generate revenue.

Rent Expense Salary Expense Utilities Expense

T FORMAT OF LEDGER

 Debit & Credit Sides

The total space is divided into two equal sides. One on the left called the "Debit Side" of the account and the other on the right called the "Credit Side" of the account.

Header
The row just above the "T" is the header for the Ledger Account. It carries the words "Dr" (read debit) to the left most end and "Cr" (read credit) to the right most end. The name of the account head (element name) whose data/information is present in that ledger account, is written in the center.

Sub Divisions of a Side

Each side of the ledger account is further sub divided into four columns Date, Particulars, J/F and Amount. Both the sides of the account look similar and the account looks symmetrical about the center.

The ledger page is actually a T-account in a more detailed format. It has the account title and its corresponding account number on top. It also has two sides, namely, the debit side and the credit side. Each T-account or ledger account has the following columns.

Date (debit side)- the date of the debit entry is entered in this column. Explanation (debit side)- A brief explanation of the debit entry is entered in this column. F or folio (debit side)- The journal page number from where the debit entry was taken is entered in this column. Debit- The amount of the debit entry is entered in this column. Date (credit side) - the date of the credit entry is entered in this column. Explanation (credit side) - A brief explanation of the credit entry is entered in this column. F or folio (credit side)- The journal page number from where the credit entry was taken is entered in this column. Credit - The amount of the credit entry is entered in this column

The posting procedure

Step 1- Locate the account title used by the journal entry in the general ledger. Step 2- Determine if the journal entry is a debit entry or a credit. If it is a debit entry, it should be posted on the debit side of the located ledger account. If it is credit entry, it should be posted on the credit side of the located ledger account. Step 3- Record the date of the journal entry in the date column. If the posting is to be done on a fresh page, write the year on the first line. Then write the month and day of the journal entry on the second line. For succeeding entries, only the day of the journal entry should be written. The month should be written only if it is different from the month of the last entry made. Step 4- Write a brief explanation of the journal entry in the explanation column. It should be on the same line as that of the date. Step 5- Write the amount of the journal entry in the amount column. It should be on the same line as that of the date and explanation. Step 6- In the folio column, write the page number of the general journal page that contains the posted journal entry. It should be on the same line as that of the date, the explanation, and the amount. Step 7- In the folio column of the general journal, write the account number of the page number of the ledger account in which the journal entry was posted. The account number of the page number should be on the same line as of the journal entry. Step 8- Do not leave a blank line between entries in the general ledger.

(A) On November 1, Chris Clark deposits $25,000 in a bank account in the name of NetSolutions.
JOURNAL
Date Description Post. Ref. Debit
2005

Page 1
Credit

1 Nov. 1 Cash 2 Chris Clark, Capital

25 000 00 25 000 00

3
4

Invested cash in NetSolutions.

(A) On November 1, Chris Clark deposits $25,000 in a bank account in the name of NetSolutions.

Effects of this entry in the Ledger

Cash
Nov. 1 25,000

Chris Clark, Capital

Nov. 1 25,000

(B) On November 5, NetSolutions bought land for $20,000, paying cash.

4 5 6 7 8 9 5 Land 20 000 00

Cash
Purchased land for building site.

20 000 00

10

(B) On November 5, NetSolutions bought land for $20,000, paying cash.

Effects of this entry in the Ledger

Cash
Nov. 1 25,000 Nov. 5 20,000 Nov. 5

Land
20,000

JOURNAL
Date
2005

Page 2
Post. Ref. Debit Credit

Description

1 Dec. 1 Prepaid Insurance 2 3 4 Cash Paid premium on two-year policy.

15 11

2 400 00 2 400 00

ACCOUNT Cash

ACCOUNT NO. 11
Post. Ref.
Balance Debit Credit Debit Credit

Date
2005

Item

Nov. 30 Dec. 1

2 2

2 000 00 2 400 00

5 900 00 3 500 00

Balance Sheet Accounts

ASSETS
Asset Accounts
Debit for increases (+) Credit for decreases (-)

LIABILITIES
Liability Accounts
Debit for decreases (-) Credit for increases (+)

OWNERS EQUITY
Owners Equity Accounts
Debit for decreases (-) Credit for increases (+)

Advantages of Ledger:
It is the ledger through which successful application of double entry system of book keeping is ensured. Each and every transaction is divided into twopartsreceiver and giver - and recorded in the two concerned accounts in ledger.

Transactions relating to different persons or concerns are recorded in the account of each person or concern separately. As a result, complete and reliable information is available in respect of each and every account.

Different types of income and expenses are recorded in different accounts separately. So, it is possible to ascertain the amount of income and expenditure under each head and the overall result at the year end through trading and profit and loss account.

Separate account is opened for each item of assets and liabilities. It is, therefore, possible to ascertain the value of different assets and liabilities and the true financial position at the year end through balance sheet.

Transactions being recorded primarily in journal and thereafter finally in ledger, the possibility of errors and defalcations is remote. Valuable information and statistics are collected from ledger and supplied to the management to enable them to run the concern efficiently.`

Disadvantages of having selfbalancing ledgers:

Adds more challenges to small concerns re: more costly to maintained ( hiring separate staff to maintain these ledgers) More clerical work as the need to maintain additional columns in subsidiary books.

THANK YOU