Introduction to Ledger Account
A ledger is a book in a summarized and classified form.
It is the most important book of account as the trial balance is drawn from it and from the trial balance final accounts are to be prepared.
In the process of bookkeeping Ledger is a second step, after the journal.
Features of Ledger Account
Why We Need Ledger Account?
1. Transfer of an account debited in a journal entry
2. Transfer of an account credited in a journal entry
In the process of bookkeeping Ledger is a second step, after the journal.
Transactions recorded in the journal gets posted into the ledger account.
Features of Ledger Account
- Ledger is a core part of the book keeping.
- It is prepared from the journal.
- It shows the current balance in all the accounts.
- It is easy to analyze.
- It summaries of all the transactions in a similar nature of accounts.
Why We Need Ledger Account?
- It provides complete information - Complete information relating to a particular account is provided in the book of the ledger.
- Provides information regarding income and expenses - A separate ledger is created for each income and expense. The total income and total expenses are known by the ledger account.
- Preparation of trial balance - Ledger helps to prepare trial balance which gives an accurate condition of books of accounts and from this final accounts are to be prepared.
- Gives a good conclusion - As the ledger account separates all different types of accounts so it helps to conclude the whole easily.
How to Prepare Ledger?
1. Transfer of an account debited in a journal entry
- find out the account to be debited in the ledger.
- Enter the date in the date column, on the debit side.
- Write the name of the account which has been credited in the respective entry in the “particular column” on the debit side of an account.
- Enter the relevant amount on the debit side of the amount column.
2. Transfer of an account credited in a journal entry
- Find out the account to be credited in the ledger.
- Enter the date, in the date column, on the credit side.
- Write the name of the account which has been debited in the respective entry in the “particular column” on the credit side of the account.
- Enter the relevant amount on the credit side of the amount column.
What is Trial Balance?
A trial balance is the list of debit and credit balances taken out from the ledger.
A trial balance is the list of debit and credit balances taken out from the ledger.
It also includes the balances of cash and bank taken from the cash book.
After creating a ledger account, the difference between the total of the debit side and the total of the credit side comes under trial balance.
After creating a ledger account, the difference between the total of the debit side and the total of the credit side comes under trial balance.
If the total of the debit side is greater than the total of the credit side then it is called debit balance.
Likewise, if the total of the credit side is larger than the total of the debit side then it is called credit balance.
All the ledger accounts shows that the debit balance is transferred to the debit of trial balance and the ledger account shows credit balance is transferred into credit side of trial balance.
Characteristics of Trial Balance
Objectives of Trial Balance
Points to Focus on: For Trial Balance
1. A trial balance is prepared with the help of a ledger account and cash book.
2. While preparing a trial balance all accounts i.e assets, liability, expenses, incomes, and revenues are considered. These ledger accounts except cash and bank balances forms the ledger.
3. If an account does not have a balance then it is to be ignored.
4. The ledger account showing debit balance should transfer into the debit column of trial balance and the credit balance of ledger account should transfer into credit side of trial balance.
5. Closing stock does not appear in the trial balance. It is usually given as an additional or adjustment outside the trial balance. It is the balance of goods unsold out of opening stock and purchases.
Characteristics of Trial Balance
- It contains balances of ledger accounts and cash books.
- It can be prepared on any date.
- It determines the correctness of the posting of entries from the journal to the ledger.
Objectives of Trial Balance
- To verify the arithmetical correctness of ledger accounts, the Trial balance enables one to establish whether posting and other accounting processes have been carried out without committing arithmetical errors.
- Help to prepare final accounts.
- It gives a summary of each account.
- The trial balance help to determine the errors in books of accounts but it does not disclose all the errors in book keeping except arithmetical inaccuracies.
Points to Focus on: For Trial Balance
1. A trial balance is prepared with the help of a ledger account and cash book.
2. While preparing a trial balance all accounts i.e assets, liability, expenses, incomes, and revenues are considered. These ledger accounts except cash and bank balances forms the ledger.
3. If an account does not have a balance then it is to be ignored.
4. The ledger account showing debit balance should transfer into the debit column of trial balance and the credit balance of ledger account should transfer into credit side of trial balance.
5. Closing stock does not appear in the trial balance. It is usually given as an additional or adjustment outside the trial balance. It is the balance of goods unsold out of opening stock and purchases.
Written By: Lakshya Thakur
Edited By: Komal Jha
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