Unit 2: Ledgers: Learning Outcomes

ACCOUNTING PROCESS 2.
31
UNIT 2 : LEDGERS
LEARNING OUTCOMES
After studying this unit, you will be able to :
w Understand the concept of Ledgers.
w Learn the technique of ledger posting and how to balance an account.
w Learn the technique of opening accounts each year taking closing balances of the previous year. Note
also the use of ‘balance c/d’ and ‘balance b/d’.
Process of
transferring
journal entries
in the accounts
Difference
between the Ledger Remaining
totals of debits known as balances
UNIT OVERVIEW and credit sides is principle are carried
found out as the books of forward to the
balance account next year
Some of the
balances are
transferred to
the profit and
loss account
© The Institute of Chartered Accountants of India

2.32 PRINCIPLES AND PRACTICE OF ACCOUNTING
2.1 INTRODUCTION
After recording the transactions in the journal, recorded entries are classified and grouped into by preparation
of accounts. The book which contains all set of accounts (viz. personal, real and nominal accounts), is known
as Ledger. It is known as principal books of account in which account-wise balance of each account is
determined.
2.2 SPECIMEN OF LEDGER ACCOUNTS

A ledger account has two sides-debit (left part of the account) and credit (right part of the account). Each of
the debit and credit side has four columns. (i) Date (ii) Particulars (iii) Journal folio i.e. page from where the
entries are taken for posting and (iv) Amount.
Dr. Account Cr.
Date Particulars J.F. Amount (`) Date Particulars J.F. Amount (`)
2.3 POSTING
The process of transferring the debit and credit items from journal to classified accounts in the ledger is
known as posting.
2.1 RULES REGARDING POSTING OF ENTRIES IN THE LEDGER
1. Separate account is opened in ledger book for each account and entries from ledger posted to respective
account accordingly.
2. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the ledger. The word ‘To’ is used in
the particular column with the accounts written on the debit side while ‘By’ is used with the accounts
written in the particular column of the credit side. These ‘To’ and ‘By’ do not have any meanings but are
used to the account debited and credited.
3. The concerned account debited in the journal should also be debited in the ledger but reference should
be of the respective credit account.
2.4 BALANCING AN ACCOUNT

At the end of the each month or year or any particular day it may be necessary to ascertain the balance in
an account. This is not a too difficult thing to do; suppose a person has bought goods worth `1,000 and has
paid only ` 850; he owes `150 and that is balance in his account. To ascertain the balance in any account,
what is done is to total the sides and ascertain the difference; the difference is the balance. If the credit side

ACCOUNTING PROCESS 2.33
is bigger than the debit side, it is a credit balance. In the other case it is a debit balance. The credit balance
is written on the debit side as, “To Balance c/d”; c/d means “carried down”. By doing this, two sides will be
equal. The totals are written on the two sides opposite one another.
Then the credit balance is written on the credit side as “By balance b/d (i.e., brought down)”. This is the
opening balance for the new period. The debit balance similarly is written on the credit side as “By Balance
c/d”, the totals then are written on the two sides as shown above as then the debit balance written on the
debit side as, “To Balance b/d”, as the opening balance of the new period.
It should be noted that nominal accounts are not balanced; the balance in the end are transferred to the
profit and loss account. Only personal and real accounts ultimately show balances. In the illustrations given,
you will have notice that the capital account, the purchases account, sales account, the discount account,
the rent account and the salary account have not been balanced. The capital account will have to be adjusted
for profit or loss and that is why it has not been balanced yet.
? ILLUSTRATION 1
Prepare the Stationery Account of a firm for the year ended 31.12.2015 duly balanced off, from the following
details:
2015 `
Jan. 1 Inventory of stationery 480
April 5 Purchase of stationery by cheque 800
Nov. 15 Purchase of stationery on credit from Five Star Stationery Mart 1,280
Dec. 31 Inventory of stationery 240
 SOLUTION
Dr. Stationery Account Cr.

Date Particulars ` Date Particulars `
1.1.2015 To Balance b/d 480 31.12.2015 By Balance c/d 2,560
5.4.2015 To Bank A/c 800
15.11.2015
To Five Star Stationery
Mart A/c 1,280
2,560 2,560
1.1.2016 To Balance b/d 2,560
? ILLUSTRATION 2
Prepare the ledger accounts on the basis of following transactions in the books of a trader.
Debit Balances on January 1, 2015:
Cash in Hand ` 8,000, Cash at Bank ` 25,000, inventory of Goods ` 20,000, Building ` 10,000. Trade receivables:
Vijay ` 2,000 and Madhu ` 2,000.
Credit Balances on January 1, 2015:

Trade payables: Anand ` 5,000, Capital ` 55,000

Following were further transactions in the month of January, 2015:
Jan. 1 Purchased goods worth ` 5,000 (payable at later date) for cash less 20% trade discount and 5% cash
discount.
Jan. 4 Received ` 1,980 from Vijay and allowed him ` 20 as discount.
Jan. 8 Purchased plant from Mukesh for `5,000 and paid `100 as cartage for bringing the plant to the factory
and another `200 as installation charges.
Jan. 12 Sold goods to Rahim on credit `600.
Jan. 15 Rahim became insolvent and could pay only 50 paise in a rupee.
Jan. 18 Sold goods to Ram for cash `1,000.
SOLUTION
Dr. Cash Account Cr.
Date Particulars L.F. ` Date Particulars L.F. `
2015 2015
Jan. 1 To Balance b/d 8,000 Jan. 1 By Purchases A/c 3,800
Jan. 4 To Vijay 1,980 Jan. 8 By Plant A/c 300
Jan. 15 To Rahim 300 Jan. 31 By Balance c/d 7,180
Jan. 18 To Sales A/c 1,000
11,280 11,280
Feb. 1 To Balance b/d 7,180
Dr. Bank Account Cr.

Jan. 1 To Balance c/d 25,000 Jan. 31 By Balance c/d 25,000
25,000 25,000
Dr. Inventory Account Cr.

Jan. 1 To Balance b/d 20,000 Jan. 31 By Balance c/d 20,000
20,000 20,000
Dr. Building Account Cr.

10,000 10,000

Dr. Vijay Cr.

Jan. 1 To Balance b/d 2,000 Jan. 4 By Cash A/c 1,980
By Discount A/c 20
2,000 2,000
Dr. Madhu Cr.

2,000 2,000
Dr. Capital Account Cr.

Jan. 31 To Balance c/d 55,000 Jan. 1 By Balance b/d 55,000
55,000 55,000
Feb. 1 By Balance b/d 55,000
Dr. Purchases Account Cr.

Jan. 1 To Cash 3,800
Jan. 1 To Cash Discount 200 Jan. 31 By Balance c/d 4,000
4,000 4,000
Dr. Discount Account Cr.

Jan. 4 To Vijay 20 Jan. 1 By Purchases A/c 200
Jan.31 To Balance c/d 180
200 200
Feb. 1 By Balance b/d 180
Dr. Plant Account Cr.

Jan. 8 To Mukesh 5,000 Jan. 31 By Balance c/d 5,300
Jan. 8 To Cash A/c 300
5,300 5,300

Dr. Mukesh Cr.

Jan. 31 To Balance c/d 5,000 Jan. 8 By Plant A/c 5,000
5,000 5,000
Dr. Sales Account Cr.

Jan. 31 To Balance c/d 1,600 Jan. 12 By Rahim 600
Jan. 18 By Cash A/c 1,000
1,600 1,600
Dr. Rahim Cr.

Jan. 12 To Sales A/c 600 Jan. 15 By Cash A/c 300
Jan. 15 By Bad Debts A/c 300
600 600
Dr. Bad Debts Account Cr.

Jan. 15 To Rahim 300 Jan. 31 By Balance c/d 300
300 300
Feb. 1 To Balance b/d 300
? ILLUSTRATION 3
The following data is given by Mr. S, the owner, with a request to compile only the two personal accounts of Mr. H
and Mr. R, in his ledger, for the month of April, 2015.
1 Mr. S owes Mr. R ` 15,000; Mr. H owes Mr. S ` 20,000.
4 Mr. R sold goods worth ` 60,000 @ 10% trade discount to Mr. S.
5 Mr. S sold to Mr. H goods prices at ` 30,000.
17 Record a purchase of ` 25,000 net from R, which were sold to H at a profit of `15,000.
18 Mr. S rejected 10% of Mr. R’s goods of 4th April.
19 Mr. S issued a cash memo for `10,000 to Mr. H who came personally for this consignment of goods, urgently
needed by him.
22 Mr. H cleared half his total dues to Mr. S, enjoying a ½% cash discount (of the payment received,
` 20,000 was by cheque).
26 R’s total dues (less `10,000 held back) were cleared by cheque, enjoying a cash discount of `1,000 on the
payment made.
29 Close H’s Account to record the fact that all but ` 5,000 was cleared by him, by a cheque, because he was
declared bankrupt.
30 Balance R’s Account.
 SOLUTION
In the books of Mr. S
Dr. Mr. H Account Cr.
1.4.2015 To Balance b/d 20,000 22.4.2015 By Bank A/c 20,000
5.4.2015 To Sales A/c 30,000 22.4.2015 By Cash A/c (Note 2) 24,775
17.4.2015 To Sales A/c 40,000 29.4.2015 By Discount Allowed A/c 225
29.4.2015 By Bank A/c 40,000
29.4.2015 By Bad Debts A/c 5,000
90,000 90,000
Dr. Mr. R Account Cr.

18.4.2015 To Purchase 5,400 1.4.2015 By Balance b/d 15,000
To Returns A/c 4.4.2015 By Purchases A/c 54,000
26.4.2015 To Bank A/c 77,600 17.4.2015 Purchases A/c 25,000
26.4.2015 To Discount
Received A/c 1,000
30.4.2015 To Balance c/d 10,000
94,000 94,000
1.5.2015 By Balance b/d 10,000
Working Notes:
(1) Sale of `10,000 on 19th April is a cash sales, therefore, it will not be recorded in the Personal Account of
Mr. H; and (2) On 22nd April, Mr. H owes Mr. S ` 90,000, amount paid by Mr. H ½ of ` 90,000 less ½% discount
i.e., ` 45,000– ` 225 = ` 44,775. Out of this amount, ` 20,000 paid by cheque and the balance of ` 24,775 in
cash.
SUMMARY
w Process of transferring journal entries in the accounts opened in Ledger is called posting.
w Ledger is known as principal books of accounts and it provides full information regarding all the
transactions pertaining to any individual account.
w The difference between the totals of debits and credit sides is found out as the balance. Some of these
balances are transferred to the profit and loss account and some are carried forward to the next year i.e.,
shown in the balance sheet, depending upon the nature of the account.

TEST YOUR KNOWLEDGE

Multiple Choice Questions
1. The process of transferring the debit and credit items from a Journal to their respective accounts in the
ledger is termed as
(a) Posting
(b) Purchase
(c) Balancing of an account
2. The technique of finding the net balance of an account after considering the totals of both debits and
credits appearing in the account is known as
(a) Posting
(b) Purchase
(c) Balancing of an account
3. Journal and ledger records transactions in
(a) A chronological order and analytical order respectively.
(b) An analytical order and chronological order respectively.
(c) A chronological order only
4. Ledger book is popularly known as
(a) Secondary book of accounts
(b) Principal book of accounts
(c) Subsidiary book of accounts
5. At the end of the accounting year all the nominal accounts of the ledger book are
(a) Balanced but not transferred to profit and loss account
(b) Not balanced and also the balance is not transferred to the profit and loss account
(c) Not balanced and their balance is transferred to the profit and loss account.
Theory Questions
1 What do you mean by principal books of accounts?
2 What are the rules of posting of journal entries into the Ledger?
Practical Questions
1. Journalize the following transactions, post them in the Ledger and balance the accounts on 31st
December.
1. X started business with a capital of ` 20,000
2. He purchased goods from Y on credit ` 4,000
3. He paid cash to Y ` 2,000
4. He sold goods to Z ` 4,000
5. He received cash from Z ` 6,000
6. He further purchased goods from Y ` 4,000
7. He paid cash to Y ` 2,000
8. He further sold goods to Z ` 4,000
9 He received cash form Z ` 2,000

ANSWERS/HINTS
MCQ’s
1. (a) 2. (c) 3. (a) 4. (b) 5. (c)
Theoretical Questions
1. Ledger is known as principal books of accounts and it provides full information regarding all the
transactions pertaining to any individual account. Ledger contains all set of accounts (viz. personal,
real and nominal accounts).
2. Rules regarding posting of entries in the ledger:
a. Separate account is opened in ledger book for each account and entries from ledger posted to
respective account accordingly.
b. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the ledger. The word ‘To’ is
used in the particular column with the accounts written on the debit side while ‘By’ is used with
the accounts written in the particular column of the credit side. These ‘To’ and ‘By’ do not have any
meanings but are used to the account debited and credited.
c. The concerned account debited in the journal should also be debited in the ledger but reference
should be of the respective credit account.
Practical Questions
Answer 1
Journal
Particulars L.F. Debit ` Credit `
Cash Account Dr. 20,000
To Capital Account 20,000
(Being commencement of business)
Purchase Account Dr. 4,000
To Y 4,000
(Being purchase of goods on credit)
Y Dr. 2,000
To Cash 2,000
(Being payment of cash to Y)
Z Dr. 4,000
To Sales 4,000
(Being goods sold to Z)
To Z 6,000
(Being cash received form Z)
Purchase Account Dr. 4,000
To Y 4,000
(Being payment of goods from Y)
Y Dr. 2,000
To Cash Account 2,000
(Being payment of cash to Y)
Z Dr. 4,000
To Sales Account 4,000
(Being goods sold to Z)


To Z 2,000
(Being cash received from Z)
TOTAL 48,000 48,000
Dr. Cash Account Cr.

To Capital A/c 20,000 By Y 2,000
To Z 6,000 By Y 2,000
To Z 2,000 Jan. 31 By Balance c/d 24,000
28,000 28,000
Dr. Capital Account Cr.
Jan. 31 To Balance c/d 20,000 By Cash A/c 20,000
20,000 20,000
Dr. Purchase Account Cr.
To Y 4,000 Jan 31. By Balance c/d 8,000
To Y 4,000
8,000 8,000
Feb.1 To Balance b/d 8,000
Dr. Y’s Account Cr.
To Cash 2,000 By Purchases 4,000
To Cash 2,000 By Purchases 4,000
Jan. 31 To Balance c/d 4,000
8,000 8,000
Dr. Z’s Account Cr.
To Sales 4,000 By Cash A/c 6,000
To Sales 4,000 By Cash A/c 2,000
8,000 8,000
Dr. Sales Account Cr.
Jan. 31 To Balance c/d 8,000 By Z 4,000
By Z 4,000
8,000 8,000

Unit 2: Ledgers: Learning Outcomes

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Unit 2: Ledgers: Learning Outcomes

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ACCOUNTING PROCESS 2.

w Understand the concept of Ledgers.

w Learn the technique of ledger posting and how to balance an account.

© The Institute of Chartered Accountants of India

2.2 SPECIMEN OF LEDGER ACCOUNTS

2.4 BALANCING AN ACCOUNT

© The Institute of Chartered Accountants of India

Dr. Stationery Account Cr.

© The Institute of Chartered Accountants of India

Trade payables: Anand ` 5,000, Capital ` 55,000

Dr. Bank Account Cr.

Dr. Inventory Account Cr.

Dr. Building Account Cr.

© The Institute of Chartered Accountants of India

Dr. Vijay Cr.

Dr. Madhu Cr.

Dr. Capital Account Cr.

Dr. Purchases Account Cr.

Dr. Discount Account Cr.

Dr. Plant Account Cr.

© The Institute of Chartered Accountants of India

Dr. Mukesh Cr.

Dr. Sales Account Cr.

Dr. Rahim Cr.

Dr. Bad Debts Account Cr.

Dr. Mr. R Account Cr.

© The Institute of Chartered Accountants of India

TEST YOUR KNOWLEDGE

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Cash Account Dr. 2,000

Dr. Cash Account Cr.

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