Learning Outcomes

After studying this Chapter, you shall be able to:

 Learn the classification aspect of accounting process.
 Understand the concept of Ledger.
 Learn the methodology for principal books.
 Know the manner of preparation of Ledger.
 Learn the manner of balancing of account.

7.1 INTRODUCTION
We have seen in chapter 6, the manner of recording transactions in the journal, which is
the first phase of accounting. These recorded entries do not reflect any result rather it is
mere chronological recording. In second phase, the net result of all the transactions in
respect of a particular account on a given date is ascertained. This process of grouping
transactions or recorded entries of one nature at one place is called as classification.
Under classification, such recorded entries are grouped into by preparation of accounts.
This book is called as ledger. At the end of each period, the balancing of these ledger
accounts is made. In this process we arrive at the net balance of all the ledger accounts.
In this chapter, the methodology of these principal books has been discussed.

7.2 MEANING AND DEFINITION OF LEDGER

The ledger contains individual account heads under which all financial transactions of a
similar nature are collected. So, the ledger contains different accounts where the
corresponding entries are posted. It serves as the main book in the accounting system
because Trial Balance is prepared with the help of balances of these ledger accounts and
from Trial Balance, financial statements are prepared. Hence, ledger is also called as
“Principal Book of Accounts”.

According to L.C.Cropper, “the book which contains a classified and permanent record of
all the transactions of a business is called as ledger.”

According to J.R.batliboi, “The ledger is the chief book of accounts, and it is in this book
that all the business transactions would ultimately find their place under their accounts
in a daily classified form.”

Did You Know HOW THE LEDGER IS MAINTAINED IN ACCOUNTING BOOKS

A ledger may be in the form of bound ledger, cards or punched sheets in a
loose leaf binder or in any other form. Usually separate page is used for each
ledger account. It is important to note that the ledger is always numbered
consecutively. It is so because this page number, called as folio, is written in
journal as the corresponding reference number. Hence, each account in a
ledger is opened on a separate sheet/page or card.

Basic Accounting for Non-Commerce students (GMC) CA. (Dr.) K. M. Bansal

Chapter 7 2 Ledger

7.3 FEATURES OF LEDGER

A ledger has the following features:
(1) It is a Principal Book of accounting system.
(2) The source document for preparation of ledger is the books of original entry viz.
subsidiary books and proper journal.
(3) It is prepared in T-Shape account format.
(4) It is a collection of all the accounts (personal, Real Nominal).

7.4 UTILITY OF LEDGER

A ledger is very useful tool in accounting system due to which it is regarded as principal
book of accounts. The following points reflect the utility of ledger:
(1) Quick and complete information of a particular item: The ledger gives
consolidated information about a particular item at one place for a period. It is so
relevant that the entity may find out the net balance of all transactions of a
particular item at any point of time. For example if a firm has purchased goods
from a particular supplier frequently on credit basis with payments on account
from time to time, then with the help of ledger one can always find out the
outstanding amount due to such supplier.
(2) Control over transactions: Under ledger, separate accounts are maintained for
each type of transaction. If the management on a particular date wants to know
the actual amount paid in respect of particular item of expense, then such
information can easily be obtained from ledger and control may be exercised.
(3) Preparation of Trial Balance: Ledger helps in finding the net final balances which
are required for preparation of Trial Balance. The arithmetical accuracy is also
checked from Trial Balance.
(4) Preparing Financial Statements: There are two basic components of financial
statements namely Income Statement and Positional Statements. The Trial Balance
(Which is based on ledger) serves as a basis for preparation of financial statements.

7.5 FORMAT OF LEDGER ACCOUNT

The ledger account is prepared in ‘T’ shape format. It is divided into two parts.
Left side is known as “Debit Side” (where all debits are recorded) and right side is
called as “Left Side”. Each side is further divided into four columns. The usual
format of an account is as follows:

Debit Name of the Account Credit

Date Particulars J.F. Amount Date Particulars J.F. Amount
To……….. XXX By……….. XXX
To……….. XXX By……….. XXX
As is very evident from the above, a ledger contains the following details:
1. Date: This column contains the date of the transaction. The opening and closing
balances obviously appear at opening and closing date respectively.
2. Particulars: In this column the name of corresponding account appears. The
posting is made using “To…..” or “By……..” in debit and credit side respectively.
3. Journal Folio (JF): This column reflects the page number of book of original entry
(i.e. Journal or any subsidiary book) which contains the corresponding journal
entry.
4. Amount: The amount column states the amount of the transaction.

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta

Chapter 7 3 Ledger
Illustration 7.1
On 18th Jan. 2019, Vishal received Rs. 28,000 in cash from Anil. The following journal entry
has been passed in the Journal:
Cash A/c Dr. 28,000
To Anil 28,000
Prepare Cash Account and the ledger account of Anil in the books of Vishal, to show the
posting to these two ledger accounts.

Answer: Books of Vishal

Cash Account
Date Particulars J.F. Amount Date Particulars J.F. Amount
18.1.19 To Anil 28,000
Anil
Date Particulars J.F. Amount Date Particulars J.F. Amount
15,000 18.1.19 By Cash A/c 28,000

7.6 CLASSIFICATION OF LEDGER ACCOUNTS

The classification of ledger accounts may be done on two bases namely their nature and
their appearance in final accounts. On the basis of nature, all the ledger accounts are
classified into five categories:
a) Assets
b) Liabilities
c) Capital
d) Revenues/Gains
e) Expenses/Losses
All these accounts may further be put together into two groups, i.e. permanent accounts
and temporary accounts.
(i) Permanent accounts include real accounts and personal accounts. All permanent
accounts are balanced and carried forward to the next accounting period. These
permanent accounts appear in the balance sheet.
(ii) Temporary accounts include losses, expenses, incomes and gains. The temporary
accounts are closed at the end of the period.
Permanent accounts Temporary accounts
1. These are not closed at the end of These are closed at the end of the
the year and are carried forward to year.
the next accounting period.
2. These include real accounts and These include nominal accounts.
personal accounts.
3. These accounts appear in the These accounts are transferred to
balance sheet. Trading and Profit and Loss A/c.
4. Example: Debtors A/c, Machinery Example: Rent A/c, commission
A/c, Creditors A/c, etc. A/c, Discount Received A/c, etc.
It is clear that this classification is very important in the context of preparation of
financial statements.

7.7 POSTING THE ENTRIES

All the transactions are available in chronological order of their occurrence in the journal.
These are transferred from journal to ledger. This process of transferring the debit and
credit from the journal to the ledger is called as “Posting”. There are two basic rules
related with posting:

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta

Chapter 7 4 Ledger
(a) No same name: In any ledger account, the name of the “same account” can never
appears. For example: In bank account, no posting to debit/credit side can be in
the name of Bank account.
(b) Reciprocal side: In respect of any journal entry, there are at least two affected
accounts. If the amount is posted to debit of one account, then it will be credited
to other account.
Usually a journal contains following entries:
(1) Simple Entries
(2) Compound Entries
(3) Opening Entries
Let us discuss the methodology of posting of these entries one by one.

7.7.1 POSTING OF SIMPLE ENTRIES

In a simple entry, only one account is debited and one account is credited. The following
procedure is followed for posting of simple entries:

Step 1 : Identify the accounts involved in the journal entry.

Step 2 : Locate these accounts in the ledger book from index otherwise open the new
account.

Step 3 : Posting of Account “Debited” in Journal Entry:

(a) The account debited in the entry is opened.
(b) The date is entered in “Date column” on the debit side of the account.
(c) Under “Particulars Column” to the debit side, the account (which has
been credited in the entry) is written as “To….(Name of A/c credited in
the entry)”.
(d) The page number of the journal where the entry exists is written in “J.F.
Column” to the debit side of the account.
(e) The amount is entered in “Amount Column” on the debit side.

Step 4 : Posting of Account “Credited” in Journal Entry:

(f) The account Credited in the entry is opened.
(g) The date is entered in “Date column” on the Credit side of the account.
(h) Under “Particulars Column” to the Credit side, the account (which has
been debited in the entry) is written as “By….(Name of A/c debited in
the entry)”.
(i) The page number of the journal where the entry exists is written in “J.F.
Column” to the credit side of the account.
(j) The amount is entered in “Amount Column” on the credit side.

Illustration 7.2
On 11th Jan. 2019, a firm has purchased Machinery for Rs. 50,000 in cash from M/s Akriti
Tools Limited. The accountant has passed the following journal entry on page number 24
of the Journal:
JOURNAL (Page 24)
Date Particulars L. F. Dr. (Rs.) Cr.(Rs.)
2019 Machinery A/c Dr. 34 50,000
Jan. 11 To Cash Account 11
(Being Machinery purchased for cash) 50,000
Analyse and show the posting to these two ledger accounts.
Answer:

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta

Chapter 7 5 Ledger
In this case, an amount of Rs. 50,000 will be debited to the Machinery A/c and credited to
Cash A/c. The following shall be the outcome:
Machinery Account (Page 34)
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Cash A/c 24 50,000
Jan. 11
Cash Account (Page 11)
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 By Machinery 24 50,000
Jan. 11 A/c

7.7.2 POSTING OF COMPOUND ENTRIES

In a particular journal entry, if there are two or more debits as against one or more credit
or vice-versa, then it is called as Compound Entry. In this case, posting shall be made
using the same procedure as stated in Para 7.7.1. It is important to note that posting is
required in respect of all debits and credits.

Illustration 7.3
On 18th March, 2019, Rs. 24,600 has been received in cash from Mohini (a debtor) in full
settlement of Rs. 25,000. The difference amount (Rs. 400) being treated as discount
allowed. Pass journal entry and post it into ledger. Use imaginary page numbers.
Answer:
The following journal entry will be passed:
JOURNAL (Page 75)
Date Particulars L. F. Dr. (Rs.) Cr.(Rs.)
2019 Cash A/c Dr. 12 24,600
March Discount Allowed A/c Dr. 28 400
18 To Mohini 31 25,000
(Being cash received from Mohini and
discount allowed.)
The posting shall be done as follows:
(1) In the above entry, Cash A/c has been debited with Mohini. Hence, in ledger, “Cash
A/c” will be debited with Rs. 24,600 as “To Mohini”.
Cash Account (Page 12)
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Mohini 75 24,600
March 18

(2) The Discount Allowed A/c has been debited. Hence, in ledger, “Discount Allowed
A/c” will be debited with Rs. 400 as “To Mohini”.
Discount Allowed Account (Page 28)
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Mohini 75 24,600
March 18

(3) The Mohini’s A/c will be credited with Cash A/c and Discount Alllowed A/c.
Therefore, in ledger, Mohini’s A/c wii be credited with:
(a) Rs. 24,600 as “By Cash A/c”
(b) Rs. 400 as “By Discount Allowed A/c”.
Mohini (Page 28)
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 By Cash A/c 75 24,600
March By Discount Allowed 75 400
18 A/c

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta

Chapter 7 6 Ledger

7.7.3 POSTING OF OPENING ENTRIES

At the beginning of each year, the existing enterprises are required to brought forward the
balances of assets and liabilities as disclosed by the Balance Sheet at the end of the
previous year. This entry is called as opening entry.

Illustration 7.4
On 1st January, 2019, the position of M/s ABC Bros. was as follows:
Cash in hand Rs. 5,000, Cash at Bank Rs. 17,000, Machinery Rs. 30,000, Furniture
Rs. 25,000, stock Rs. 8,000, Debtor Rs. 12,000, Creditors Rs. 11,000 and Bills
Payable Rs. 6,000.
Pass the opening Journal Entry. Also post the opening entry.
Solution
Date Particulars L. Dr. (Rs.) Cr.(Rs.)
F.
2019 Cash A/c Dr. 5,000
Jan. 1 Bank A/c Dr. 17,000
Stock A/c Dr. 8,000
Machinery A/c Dr. 30,000
Furniture A/c Dr. 25,000
Debtor A/c Dr. 12,000
To Creditors A/c 11,000
To Bills Payable A/c 6,000
To Capital A/c (Balancing Figure) 80,000
(Being the balances of Assets, Liabilities
and Capital brought forward)
LEDGER
Dr. Cash Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Balance b/d 5,000
Jan. 1
Dr. Bank Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Balance b/d 17,000
Jan. 1
Dr. Stock Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Balance b/d 8,000
Jan. 1
Dr. Machinery Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Balance b/d 30,000
Jan. 1
Dr. Furniture Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Balance b/d 25,000
Jan. 1
Dr. Sundry Debtors Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 To Balance b/d 12,000
Jan. 1
Dr. Sundry Creditors Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 By Balance b/d 11,000

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta

Chapter 7 7 Ledger
Jan. 1
Dr. Bills Payable Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 By Balance b/d 6,000
Jan. 1
Dr. Capital Account Cr.
Date Particulars J.F. Amount Date Particulars J.F. Amount
2019 By Balance b/d 80,000
Jan. 1

Illustration 7.5
Prepare the Stationery Account for the first month of the accounting period i.e.
January 2019 from the following particulars. You need not to pass any journal
entry, only ledger account is required.
Jan. Particulars Amount
2019 (Rs.)
5 Purchase of stationery in cash 1,500
10 Purchased from Shyam on credit 1,000
15 Purchased on cash basis from Jaina Stationers, New Delhi 900
21 Purchase of goods for cash 12,000
27 Cash paid to shyam on account of stationery purchased on 10th 1,000
Jan.

Solution
Stationery Account
Date Particulars J.F. Amount Date Particulars J.F. Amount
5-1-19 To Cash A/c 1,500
10-1-19 To Shyam A/c 1,000
15-1-19 To Cash A/c 900
Note: No posting will be made for the transactions dated 21st and 27th January, 2014. In
fact, purchase of goods is to be debited to Purchases Account and not to stationery
account. Similarly, cash paid to shyam will be debited to Shyam’s account.

7.8 DISTINCTION BETWEEN JOURNAL AND LEDGER

The Journal and Ledger are sequential parts of double entry system. The duo books are
the indispensable for the accounting system. The points of differences between the two
may be summarized as under:

Journal Ledger
1. These are books of Prime Entry. These are principal books.
2. Chronological order is used. Analytical manner is used.
3. Process of recording is called as The process is called as posting.
Journalizing.
4. Balancing is not required. Balancing of all ledger accounts is
made.
5. It acts as a base for ledger. It acts as base for trial balance.
6. The net balances of any account The net position of any account can be
cannot be ascertained. ascertained.

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Chapter 7 8 Ledger

7.9 Balancing of an Account

At the end of the each period, it is necessary to find out the net balance of each account.
The total of one side of the account is compared with the total of another side and the
difference is ascertained. This process is called as balancing of ledger account. All the
ledger accounts are balanced except nominal accounts which are taken to Trading and
Profit and Loss account. It means only personal and real accounts ultimately show
balances. These balances may be of three types:

1. No Balance Total of Debit side = Total of Credit Side

2. Debit Balance Total of Debit side > Total of Credit Side
3. Credit Balance Total of Credit side >Total of Debit Side

The closing balances of real and personal accounts of a period become the opening
balance of the next period. It is important to note that the balance of an account depends
upon its type. For example all the assets must have debit balance whereas liabilities have
credit balances. Similarly expenses and revenues have debit and credit balances
respectively. The following example illustrates this fact clearly.

Illustration 7.6
Identify the routine balances in the following ledger accounts:

Capital, Sales, Purchases, Interest Received, Inventory, Debtors, Creditors, Sales Return,
Purchases Return, Bad Debt Recovered, Salaries, Cash, Bank Overdraft, Drawings, Rent,
Rent Received, Machinery, Goodwill, Discount Received and Freight.
Solution
Ledger Account Type of Balance
1. Capital Credit
2. Sales Credit
3. Purchases Debit
4. Interest Received Credit
5. Inventory Debit
6. Debtors Debit
7. Creditors Credit
8. Sales Return Debit
9. Purchases Return Credit
10. Bad Debt Recovered Credit
11. Salaries Debit
12. Cash Debit
13. Bank Overdraft Credit
14. Drawings Debit
15. Rent Debit
16. Rent Received Credit
17. Machinery Debit
18. Goodwill Debit
19. Discount Received Credit
20. Freight Debit

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta

Chapter 7 9 Ledger

TEST YOUR KNOWLEDGE

Objective Type questions

State whether the following statements are True (T) of False (F).
(1) In ledger, all the accounts namely personal, real and nominal are maintained.
(2) All business transactions are first recorded in the ledger.
(3) Salary paid in cash will be posted to the debit side of Salary A/c as “By Cash…”
(4) The L.F. in the journal is filled at the time of posting.
(5) The process of transferring the accounts from the journal to the ledger is called as
“Posting”.
(6) Asset Accounts may have either debit or credit balances.
(7) At the end of the accounting period, the nominal accounts are closely by
transferring to Trading or Profit and Loss A/c.
(8) The credit balance means the total of debit side of an account is in excess of total
of credit side of an account.
(9) Ledger is a book of original entry.
(10) The ledger is a book which contains a classified and permanent record of all the
transactions of a business.
[Answers: True:- 1,4,5,7,10 False:-2,3,6,8,9]
Theoretical Questions
1. What is ledger? Enumerate the advantages of ledger.
2. What is the significance of L.F. column in ledger?
3. Give distinction between books of original entry and ledger.
4. Write the steps to be taken for posting of simple entry.
5. Distinguish between Permanent A/c and Temporary Accounts.
6. What do you mean by balancing of ledger? What types of balances may be there?
7. What is the usual balance of following ledger accounts?
(a) Any Asset
(b) Any Liability
(c) Any Expense
(d) Any Revenue
(e) Any Prepaid Expenses
(f) Any Outstanding Expenses
[Answers: Debit:- a, c, e Credit:- b, d, f]
Practical Questions

Q.1 [Modern System] Classify the following into Assets, Liabilities, Capital,
Revenue and Expenses:
Plant, Rent, Carriage Inwards, Discount Received, Capital, Bank Loan, Sales,
Drawings, Bills Payable, Machinery, Carriage Outwards, Wages, Outstanding
Expenses, Accrued Income, Income received in advance, Debtor, Furniture,
Advance Income, Goodwill, Purchases, Salary and Cash.

Q.2 [Traditional System] Classify the following into Personal, Real and Nominal:
(a) Debtors
(b) Interest Received
(c) Bad Debts
(d) Bad Debts Recovered
(e) Capital
(f) Drawings
(g) Salary
(h) Goodwill
(i) Plant and Machinery

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta

Chapter 7 10 Ledger
(j) Amount due from Shyam
(k) Purchases
(l) Bad Debts
(m) Depreciation

Q.3 [Preparation of Account] From the following information for the month of
April, 2019, you are required to prepare Cash A/c, Purchases A/c, Sales A/c and
Capital A/c:

Amount (Rs.)
(a) Amit started business with cash. 2,00,000
(b) Goods purchased for cash. 40,000
(c) Goods purchased from Manoj on credit. 32,000
(d) Cash paid to Manoj on account. 13,000
(e) Purchased Furniture for cash. 20,000
(f) Good sold for cash. 25,000
(g) Sold goods to Ritu on credit. 26,500
(h) Cash received from Ritu. (Discount Allowed Rs. 200) 26,300
(i) Paid to Manoj, balance amount. ?
(j) Paid to Rishab as salary 7,000
(k) Paid Rent for the office. 7,500

Q.4 [Posting of Simple Entry] On 19th May 2019, a firm has purchased goods on
credit from Aman for Rs. 30,000. The accountant has passed the journal entry
on page number 14 of the Journal. The ledger accounts of Purchases A/c and
Aman’s A/c are to be prepared on page numbers 29 and 45 respectively. You
are required to show:
(1) Journal entry in Journal
(2) Purchases A/c and Aman’s A/c in ledger.

Q.5 [Posting of Compound Entry] On 5th May, 2019, a firm has paid Rs. 14,650
to Mr. Keval in full settlement of Rs. 15,000 due to him as a creditor. Using
imaginary folio numbers, Show how above compound entry will appear in
Journal and Ledger.

Q.6 [Posting of Opening Entry] On 1st April, 2019, the position of M/s ABC Bros.
was as follows:
Cash in hand Rs. 6,000, Cash at Bank Rs. 11,000, Machinery Rs. 35,000,
Furniture Rs. 15,000, stock Rs. 7,000, Debtor Rs. 22,000, Creditors Rs. 19,000
and Bills Payable Rs. 5,000.
Pass the opening Journal Entry. Also, prepare all the relevant ledger accounts
to post this opening entry.
[Answers: Opening Capital Rs. 72,000]

Q.7 [Ledger Balances] Identify the routine balances in the following ledger
accounts:
1. Debtors 15. Bank Balance
2. Creditors 16. Sales
3. Amount due to Mr. X 17. Purchases
4. Bad Debt Recovered 18. Interest Received
5. Amount due from Mr. A 19. Personal A/c of owner
6. Loss of Stock 20. Advertisement Expense A/c
7. Discount Received 21. Inventory

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta

Chapter 7 11 Ledger

8. Goodwill A/c 22. Sales Return

9. Patents 23. Purchases Return
10. Discount Allowed 24. Drawings
11. Loan to employees 25. Rent
12. Bank Overdraft 26. Rent Received
13. Salaries 27. Machinery
14. Cash 28. Freight
[Answers: Debit Balance:- 1,5,6,8,9,10,11,13,14,15,17,20,21,22,24,25,27,28]

Basic Accounting CA. (Dr.) K. M. Bansal & Dr. Ritu Gupta