LEDGER POSTING • When all the transactions of a given period have

been journalized, the next thing is to classify them according to the accounts affected. All similar transactions must be brought together. For instance, all transactions relating to cash must be put in one place.

Definition:- The ledger is a book which contains a condensed and classified record of all the pecuniary transactions of the business generally brought, transferred or posted from the books of original entry.

Form of Ledger

Date Particulars J.F.Amount(To be

debited)Date Particulars J.F.

Amount(To be

Credited)

               

Dr Account Head Cr

Debit Side Credit Side

A ledger account has a format which in its simplest form is known as the "T" Format as it looks like a large "T".

Method of Posting• Based on the Dual Entity Concept, we can say that every

transaction has its effect on two elements. Each element or Ledger Account has its own place in the Ledger. Thus each transaction has its effect in two places in the ledger.

• In other terms, each transaction effects two ledger accounts. For the purpose of journalizing, we analyze the transaction and identify the two elements effected, which one is to be debited and which one is to be credited.

• Preparing the ledger implies posting the information to the two Ledger Accounts (elements/account heads) effected by the transaction. Ledger posting can be understood from the manner in which a journal entry is read.

Reading the Journal entryConsider the following journal transaction and its journal entry

June 15th: Bought Furniture for cash Rs. 12000Journal in the books of M/s __ for the period from ____ to _____ 2,000.

Date Particulars L/FDebit Amount(in Rs)

Credit Amount(in Rs)

June 15th

Furniture a/c Dr   To Cash a/c

[ Being the amount paid towards Furniture purchased from M/s ____ vide bill no:___ dated:__ ]

––

12,00012,000

The detail relating to each transaction (called a Journal entry) can be read in two different ways.

NORMAL ORDERFurniture a/c "Debtor (pronounced detor) To" Cash a/c.

      [Begin reading with the debited account]

REVERSE ORDERCash a/c "Credited By" Furniture a/c. [Begin reading with the credited account]

• The two accounts involved in the transaction are "Furniture a/c" and "Cash a/c". Thus, the information in the Journal entry is to be posted into these two accounts.

• There are two orders of reading, each of which can be related to one of the postings to be made.

In the above example, to post the entry into

"Furniture a/c", read the journal entry starting with "Furniture a/c", which is the normal order

“Furniture a/c debtor (read detor)”To Cash a/c.”

• The account other than the account being dealt with here is "Cash a/c" and it is prefixed by "To". This is written on the debit side of the Furniture a/c.

To post the entry into

"Cash a/c", read the journal entry starting with "Cash a/c", which is the reverse order

“Cash a/c credited "By Furniture a/c" The account other than the account being dealt with here is "Furniture a/c" and it

is prefixed by "By". This is written on the credit side of the Cash a/c.

Order of Reading helps posting

Dr Furniture a/c Cr

Date Particulars J/FAmount(in Rs)

Date Particulars J/FAmount(in Rs)

15/05/05 To Cash a/c – 12,000   

   

               

Dr Cash a/c Cr

Date Particulars J/FAmount(in Rs)

Date Particulars J/FAmount(in Rs)

  

      By Furniture a/c – 12,000

How the ledger accounts will look?

TRIAL BALANCE A trial balance is a statement prepared by taking out the

debit and credit balances of all accounts appearing in the ledger.

After all transactions have been posted from the journal to the ledger, it is a good practice to prepare a trial balance. A trial balance is simply a listing of the ledger accounts along with their respective debit or credit balances. The trial balance is not a formal financial statement, but rather a self-check to determine that debits equal credits.

Proof of Accuracy

If the debit and credit totals of the trial balance are equal and also correspond with the total of journal, we may be satisfied that the posting have been properly made and are arithmetically accurate.

Form of Trial Balance

Trial Balance of M/s _____ as on _____

Particulars L/FDebit Amount(in Rs)

Credit Amount(in Rs)

Account Head 1 Account Head 2 Account Head 3

— — — —

– – –

– – –

Total   xxxx xxxx

Methods of Preparing Trial Balance• Traditional Method: The traditional method

considers the sub-totals of each ledger account. It is prepared by presenting the sub-totals relating to each ledger account in the relevant columns in the trial balance.

• Modern Method:

The modern method considers only the balances of the ledger accounts. It is prepared by presenting the balance relating to each ledger account in the relevant column in the trial balance.

Particulars L/FDebit Amount(in Rs)

Credit Amount(in Rs)

Cash a/c Capital a/c Furniture a/c Rent Paid a/c Bank a/c Goods/Stock a/c M/s Ramdas & Bros. a/c Machinery a/c Mr. Natekar a/c Wages Paid a/c Commission Received a/c

— — — — — — — — — — —

214,500 0

20,000 5,000

1,50,000 20,000 5,000

25,000 8,000 5,000

0

1,90,000 2,00,000

0 0

30,000 20,000 10,000

0 2,000

0 500

Total   4,52,500 4,52,500

"Trial Balance" [Traditional Method]

Trial Balance of M/s _____ as on _____

Particulars L/FDebit Amount

(in Rs)Credit Amount

(in Rs)

Cash a/c Capital a/c Furniture a/c Rent Paid a/c Bank a/c Goods/Stock a/c M/s Ramdas & Bros. a/c Machinery a/c Mr. Natekar a/c Wages Paid a/c Commission Received a/c

— — — — — — — — — — —

24,500

20,000 5,000

1,20,000

25,000 6,000 5,000

  2,00,000

5,000

500

Total   2,05,500 2,05,500

"Trial Balance" [Modern Method]

Trial Balance of M/s _____ as on _____

How to Prepare Trial BalanceCash Land Trial Balance

25000 2000 15000 Cash 26300

4000 500 Land 15000

4800 5000 15000 A/R 3200

33800 7500 A/P 25000

26300 Accounts Payable Capital Stock 19500

Accounts Receivable 10000 35000

8000 4800 25000

3200

Capital Stock 44500 44500

19500

19500