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

………
Dat A/C Title Re Amoun Dat A/C Title Re Amoun
e f. t e f. t

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

………
Date Description Ref Dr. Cr. Balance

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 Financial accounting notes

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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