Financial accounting notes

LEDGER:- When we bring together all the accounts of the same nature on one page, we are in fact preparing a “ledger account”. A separate page for each account is allocated in ledger, and all the transactions of the same nature are recorded on that page in a summarized form. The term ledger is defined as, “A book which contains the condensed and classified record of all the transactions of a business in shape of accounts”.

OBJECTIVES OF LEDGER:The main objectives of ledger are:

1. To classify the business transactions, so that we may determine the real increase or decrease in an account during a particular period.

2. To prepare a trial balance for proving the arithmetical accuracy of the record.

3. To provide reference of all the business transactions relating to a particular account if it is needed.

FORMS OF LEDGER:These are two forms of ledger:

a) Periodical Balance Form.b) Running Balance Form.

PERIODICAL BALANCE FORM:In this case the page is divided into two halves, left hand side (one

half) is called debit side and the right hand side (the other half) is called credit side. This form of ledger is of ‘ T ’ shape, therefore known as ‘ T ’ account. The standard form of ‘ T ’ account is given below.

Account ………… Account Code ………

Date

A/C Title Ref.

Amount

Date

A/C Title Ref.

Amount

RUNNING BALANCE METHOD:This from of ledger is much similar to the structure of a general journal,

with a single difference is that it contains an extra column with heading “Balance” at the end. The standard form of this method is as under:

Account ………… Account Code ………

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Financial accounting notes

Date Description Ref.

Dr. Cr. Balance

METHOD OF POSTING: Title of account and account numbers are written at the top. Column No.1 is meant for writing the date of transactions. Column No.2 is for explanation. Names of the corresponding accounts

are recorded in this column. Column No. 3 is meant for reference (number of page in journal). If an account is debited in journal the amount will be written in the

debit column of the ledger (Column No. 4) If an account is credited in journal the amount will be written in the

credit column of the ledger (Column No. 5) Column No.6 is meant for recording the balance. After taking the

difference between the credit amount and debit amount, if the debit amount is greater than credit amount than Dr. is put after the difference amount, otherwise Cr. is placed. In a case if both credit and debit amounts are same and their difference result is zero than nothing is placed after 0 not Dr. nor Cr.

CLASSIFICATION OF LEDGER:All the accounts of a small or average business concern can be

recorded in only one ledger, but in large organizations it is not possible to do so. Ledger can be classified as:

a) General Ledger.b) Subsidiary Ledgers.

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