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Ledgers

A ledger is a book of accounts to which the journal entries of all the transactions are posted. The transactions are recorded in the various journals before they are posted to the appropriate accounts in the different ledgers to show the debit and credit entries of each account.

All transactions that are related to a particular account are posted to that account. For example, all transactions relating to cash are entered in the cash account. Other accounts are kept for firms or persons to whom goods are sold, from whom goods are purchased, expenses incurred in running the business and the real property owned by the firm such as plant and machinery, motor vehicles, fixtures and fittings, capital and reserves.

There are three different types of ledgers. They are:

General Ledger or Nominal Ledger contains all other accounts of capital, assets, liabilities, income and expenses

Subsidiary Ledger or Personal Ledger – There are two subsidiary ledgers:

- Sales, Sold or Debtors Ledger: - This ledger contains personal accounts of customers who owe the firm money.

- Purchases, Bought or Creditors Ledger: - This ledger contains personal accounts of suppliers to whom the firm owes money.

Private Ledger contains accounts which the owners of business wish to keep confidential.

Each account in the ledger has an opening balance brought forward from the previous accounting period, and a closing balance which is the amount that remains at the end of a period after the debit and credit sides of the accounts offset each other. The ledger accounts are likened to the letter T and thus referred to as T accounts.

Each account has two sides – a left or debit (Dr) side and a right or credit (Cr) sides. The excess of one side indicates a balance. For example, the excess of the debit side is a debit balance. At the end of an accounting period which is usually a year, an amount equal to the difference between the two sides is entered in the side that has the lesser total so that the totals of both sides are equal. This amount to make up the difference is known as the closing balance which becomes the opening balance of the next accounting period.

The most usual column headings of the ledger accounts are: date, particulars, folio and amount as follow:


An account in the ledger (general ledger)

Machinery Account

Date

Particulars

Folio

Amount

Date

Particulars

Folio

Amount

20XX
Jan 01


Balance b/d




$
4,400

20XX
Jun 30

Dec 31


Disposals

Balance c/d



$
1,200

3,200




4,400




4,400

Posting to ledgers

The word ‘posting’ in accounting means the transfer of entries in the journal to the accounts in the ledgers. Whether a journal item is to be posted to the debit or credit side of the ledger account is decided in the journal. Entries made in the journal are written either as debit or credit as shown below.

Example of a journal entry

Date Particulars Folio Debit Credit
20XX $ $
Sep 11 Discount Allowed 110
George Zorro & Sons 110
Total 110 110
(Being discount given for quick payment)


Postings to accounts in the ledgers are done in accordance with the debit or credit entries as entered in the journal. Debit items are posted to the left side of the account, and credit items are entered in the right side.


Posting of the above journal entry:

General Ledger

Discounts Allowed Account

Date

Particulars

Folio

Amount






20XX
Sep 11


George Zorro & Sons


SL 33

$
110








Sales Ledger

George Zorro & Sons

Date

Particulars

Folio

Amount


Date

Particulars

Folio

Amount

20XX
Sep 01


Balance b/d


$
2,220


20XX
Sep 11


Discount Allowed



GL 17


$
110


Whether or not postings have been done correctly to the ledger accounts are easily verified by the trial balance. The trial balance is a list of the closing balances of all the accounts in the ledgers. The debit and credit totals of the trial balance must equal each other. This assumes that no errors are made in the process of posting. However, the debit and credit totals of the trial balance can still balance while certain errors remain undetected.