General Ledger Concepts : Accounting Basics Day 3

All types of accounts we learnt in the last chapter viz. personal, real, and nominal are summarized in Ledger. Ledger is a book which contains a classified and permanent record of all the transactions of a business. Ledgers are bound book or loose leaf with each account starting on new page, and each page numbered. Loose-leaf ledger allows addition of pages, removal of completed accounts, and rearrangement of accounts.
Ledger is principal book containing all the accounts also called “Book of Final Entry” or “Book of secondary entry” because transactions are recorded here finally.
Ledger offers following benefits

• Ledger gives snapshot of an account, all at one place. For example all cash transactions at one place.
• Trial balance can be prepared to check arithmetical accuracy of the accounts in ledger.
• It facilitates preparation of final accounts for ascertaining operating result and financial position of the firm.

Ledger Book

Dr							Cr
Date	Particulars	J.F	Amount	Date	Particulars	J.F	Amount
Year Month Date	To (Name of Credit Account in Journal)			Year Month Date	By (Name of Debit account in Journal)

As shown above each ledger account is divided into two parts: left hand side is known as debit side and right hand side credit side. Debit and credit is abbreviated as ‘Dr.’ and ‘Cr.’ Account name is mentioned in the middle and at the top of the account. ‘To’ is used on the debit side in the particulars column. Similarly, the word ‘By’ is used on the credit side. The name of the account affected is written in debit or credit side in particulars column. Journal page number is entered in J.F column. For amount a separate column is also provided.
Posting of Transactions
Posting is the process of transferring entries from journal to the respective accounts in the ledger. All transactions relating to a particular account are grouped in ledger. It is necessary to know the net effect of various transactions during a given period on particular account.
Now we shall see the procedure of posting entries from journal to ledger. Let us assume a scenario of posting for an account which has been debited in the journal entry.

1. First locate account to be debited. Enter date of the transaction in date column.
2. Record the name of the account credited in the Journal in the particulars column on the debit side as “To..... (Name of the account credited)”.
3. Record the page number of the Journal in the J.F column on the debit side and in the Journal, write the page number of the ledger on which a particular account appears in the L.F. column.
4. Enter the relevant amount in the amount column on the debit side.For scenario of posting for an account which has been credited in the journal entry, procedure is same, except at step 1 and 2. These steps would be as follows
5. First locate account to be credited. Enter date of the transaction in date column.
6. Record the name of the account debited in the Journal in the particulars column on the credit side as “By..... (Name of the account debited)”.

For example
If you have started business with cash Rs. 5000 on 1st June 2009. The above transaction will appear in Journal and Ledger as under.

Date	Particulars	L.F	Debit Rs	Credit Rs
Jun 1,	Cash A/c Dr.	10	5000	-
2009	To Capital A/c	23	-	5000
	(Business started)

Here two accounts are involved, Cash Account and your capital account, so ledger shall have page for each account.

Dr		Cash Account					Cr
Date	Particulars	J.F	Amount	Date	Particulars	J.F	Amount
June 1, 2009	To Capital A/C		5000

Dr		Cash Account					Cr
Date	Particulars	J.F	Amount	Date	Particulars	J.F	Amount
				June 1, 2009	Cash A/c		5000

Posting of Opening Entries
We learnt about opening entries which are passed at the beginning of new financial year which is nothing but the debit or credit balance of an account at the end of accounting period. Let us see the procedure.
An account with debit balance is recorded with words “TO BALANCE B/D” on debit side and with credit balance “BY BALANCE B/D” on credit side. We can not say this process as “posting” but merely incorporating in the ledger.
Let us take one example of posting the opening entry into the ledger of PHPL as on 1st April 2010, cash in hand Rs. 10,000; Loan Rs. 1,00,000.

Dr		Cash Account					Cr
Date	Particulars	J.F	Amount	Date	Particulars	J.F	Amount
April 1, 2010	To Balance A/c		100000

Dr		Loan Account					Cr
Date	Particulars	J.F	Amount	Date	Particulars	J.F	Amount
				April 1, 2010	By Balance b/d		1000000

Next Page:

• Balancing General Ledger Accounts
• Subsidiary Books