A ledger is an accounting book that facilitates the transfer of all journal entries in a chronological sequence to individual accounts. The process of recording journal entries into the ledger is called posting.
The book in which accounts are maintained is called ledger. Generally, one account is opened on each page of this book, but if transactions relating to a particular account are numerous, it may extend to more than one page. All transactions relating to that account are recorded chronologically. From journal each transaction is posted to at least two concerned accounts – debit side of one account and credit side of another account. Remember that, if there are two accounts involved in a journal entry, it will be posted to two accounts in the ledger and if the journal entry consists of three accounts (compound entry) it will be posted to three different accounts in the ledger. The process of transferring information from journal to ledger accounts is known as posting. The goal of all transactions is ledger. Ledger is known as the destination of entries in journal but it must be remembered that transactions cannot be recorded directly in the ledger – they must be routed through journal. This concept is illustrated below:
| Transaction |
| ↓ |
| Journal |
| ↓ |
| Ledger |
So, the books in which all the transactions of a business concern are finally recorded in the concerned accounts in a summarized form is called ledger.
Characteristics of Ledger Account:
The ledger has the following main characteristics:
- It has two identical sides – left-hand side (debit side) and right-hand side (credit side).
- The debit aspect of all the transactions are recorded on the debit side and credit aspects of all the transactions are recorded on credit side according to date.
- The difference of the totals of the two sides represents balance. The excess of the debit side over credit side indicates debit balance, while an excess of credit side over debit side indicates the credit balance. If the two sides are equal, there will be no balance.
- Generally, the balance is drawn at the year end and recorded on the lesser side to make the two sides equal. This balance is known as closing balance.
- The closing balance of the current year becomes the opening balance of the next year.
Uses of Ledger
It helps to know
- How much amount is due from a particular customer?
- How much amount is owned to a particular supplier?
- How much is the amount of purchase and sales during a given period?
- How much amount has been incurred on a particular head of expenditure?
- How much amount has been earned on account of a particular head of income?