Preparation of Ledger Accounts

What is Ledger?

A Ledger records transactions from the journal and forms separate accounts for them in chronological order. A Ledger is a date-wise record of all the transactions related to a particular account. Ledgers are crucial sources of financial records. A ledger is formed after the journal and is the secondary step of bookkeeping. After the preparation of the journal, there comes the classification of journal entries into separate accounts and posting them in the ledger like a cash account, salary account, payable accounts, etc., in chronological order.

Format of Ledger-

Ledger is a T-format account where the debit is depicted on the left side, and the credit is depicted on the right side. The columns include date, particulars, journal folio (JF), and amount.

Debit: The debit side of an account represents when the debit increases.

Credit: The credit side of an account represents when the credit increases.

Date: The date on which the transaction takes place.

Particulars: The contra entry of the concerned account according to the double entry system is shown under this head.

Journal Folio: The reference number of the journal entry from the journal.

Amount: It is the amount debited or credited to a particular amount during the transaction.

Example of Ledger Accounts

Let's assume ABC Ltd. records the following transactions for the year ending on March 31, 2023. We'll create the ledger accounts for these transactions.

Transactions:

1. April 1, 2022: Plant purchased for Rs. 34,000/- through cheque.
2. August 18, 2022: Goods sold for cash amounted to Rs. 3,900/-.
3. January 20, 2023: Goods sold to MNP Ltd. on credit for Rs. 7,200/-.
4. March 31, 2023: Depreciation charged on Plant Rs. 3,400/-.

Solution:

Journal entries in the Books of ABC Ltd. for the year ending March 31, 2023:

JOURNAL:

Date	Particulars	LF	Amount (Dr.)	Amount (Cr.)
2022-23	Plant A/c		34,000
April 1	To Bank A/c			34,000
	(Being Plant purchased through cheque)
August 18	Cash A/c		3,900
	To Sales A/c			3,900
	(Being goods sold for cash)
January 20	MNP Ltd.		7,200
	To Sales A/c			7,200
	(Being goods sold on credit)
March 31	Depreciation A/c		3,400
	To Plant A/c			3,400
	(Being Depreciation charged on Plant)

LEDGER :

Plant A/C

Dr.				Cr.
Date	Particulars	JF	Amount(₹)	Date	Particulars	JF	Amount(₹)
2022-23	To Bank A/c		34,000	2022-23 Mar 31	By Depreciation A/c		3,400
April 1

Bank A/C

Dr.				Cr.
Date	Particulars	JF	Amount(₹)	Date	Particulars	JF	Amount(₹)
				2022-23 April 1	By Plant A/c		34,000

Cash A/C

Dr.				Cr.
Date	Particulars	JF	Amount(₹)	Date	Particulars	JF	Amount(₹)
2022-23 Aug 18	To Sales A/c		3,900

Sales A/C

Dr.				Cr.
Date	Particulars	JF	Amount(₹)	Date	Particulars	JF	Amount(₹)
				2022-23 August 18	By Cash A/c		3,900
				January 20	By MNP Ltd.		7,200

MNP Ltd. A/C

Dr.				Cr.
Date	Particulars	JF	Amount(₹)	Date	Particulars	JF	Amount(₹)
2022-23 Jan 20	To Sales A/c		7,200

Depreciation A/c

Dr.			Amount(₹)	Cr.
Date	Particulars	JF		Date	Particulars	JF	Amount(₹)
2022-23 March 31	To Plant A/c		3,400

Balancing of Accounts: A Step-by-Step Explanation

Here's a breakdown of how to balance ledger accounts, explained for clarity:

1. Comparing Debit and Credit Sides

• What to do: After you've recorded all your journal entries in the respective ledger accounts (T-accounts), compare the total values in the debit and credit columns of each account.
• Why: This step is crucial for figuring out if the account has a debit or credit balance (or neither!).
• Finding the Difference: Calculate the difference between the total debit and total credit amounts.

2. Entering the Balance and Totals

• Placing the Difference:
  • Put the difference you calculated in the amount column of the smaller side of the account (either debit or credit)
• "Balance c/d":
  • In the particulars column on the same line as the difference, write "Balance c/d" (or "carried down").
  • This indicates that this is the balance of the account at the end of the period.
• Date:
  • In the date column, you write the last day of the accounting period.
• Totals:
  • Add up all the amounts in the debit and credit columns. Both sides must now have the same total.
  • Record the total of the debit and credit sides in the same line horizontally.

3. Bringing Down the Balance

• Moving to the Opposite Side:
  • Below the total, record the same difference you calculated earlier on the opposite side (if it was on the credit side, bring it to the debit side and vice-versa).
• "Balance b/d":
  • In the particulars column on the same line as the difference brought down, write "Balance b/d" (or "brought down").
  • This indicates that this is the beginning balance of the account for the next period.
• Date:
  • In the date column, you write the first day of the next accounting period.

4. Determining Debit/Credit Balance

• Debit Balance:
  • If the total debit side of the account is larger than the credit side before you balanced it, then the account has a debit balance.
• Credit Balance:
  • If the total credit side of the account is larger than the debit side before you balanced it, then the account has a credit balance.
• Nil Balance:
  • If the debit and credit sides are equal before you balance it, the account has a nil balance.
  • If there's no difference, you don't add a balance or total.

Example :

Sales A/c

Dr.		JF	Amount(₹)	Date	Particulars	JF	Amount(₹)
2022-23				2022-23 August 18	By Cash A/c		3,900
				January 20	By MNP Ltd.		7,200
March 31	To Balance c/d		11,100
			11,100				11,100
				2023-24 April 1	By balance b/d		11,000