What is a Ledger Account? Objective of ledger

What is a Ledger Account?Objective of ledger

Introduction of ledger
A journal, as we have studied, is a sequential record of business transactions. It records all financial transactions of business in a book in chronological order; however, it does not record transactions relating to a particular subject, thing or persons into one account. For example, if we want to know the total purchase of business for a period of three months, we have to go through all journals of three months, which is quite time consuming and tedious. To overcome the short coming of journal, a ledg

er account is maintained.

Ledger is a statement prepared to collect and record transactions relating to similar nature or subject into one place. In other words, a book which records transactions having similar features, nature and subject into the account is called ledger account. It is a book which contains a classified and summer' zed form of permanent record of all transactions. Ledger is called the book of secondary entry because it is prepared from journal.

O.P. Gupta, 'ledger is the principle book of account in which all transactions find their ultimate place in the shape of account in a classified place form. The book supplied all information regarding working of business.'

Objective of ledger
A ledger is principal book of account. It is prepared with a view to gathering similar transactions into one account to show their combined effects. The main objectives of ledger are:

1. To provide information about income and expenditures
One of the main objectives of preparation of ledger account is to record various incomes and expenditures of the business. For example, expenses during the period in total. Similarly income like interest received and receivable is posted to interest account to find total interest earned during the period.
2. To provide information about position of assets and liabilities
A separate ledger account is prepared for individual asset and liability which helps to know its effect on financial position of business during a particular period. For example: debtor account is prepared to know the amount receivable during the period.
3. To provide information regarding purchase and sales
In a period, a firm can have several purchase and sales. A purchase account is prepared to know the total purchase made during the period and similarly, sales account shows the total sales made during the period. Therefore, ledger is very helpful to know the information about purchase and sales.
4. To help in preparation of trial balance
Since trial balance is prepared on the basic of information provided be ledger account. Thus, ledger account is immense help for preparing trial balance.
Specimen of ledger
A ledger may be prepared either in T-shape or showing balance after each transaction which is called a
Ledger account showing running balance i.e. running shape.

T-shape ledger account

This type of ledger account commonly used in book keeping. The ledger is divided into two parts, the left part of debit and right part for credit. A specimen ruling of ledger accounting is presented below:
1. Date dr.
2. Particular
3. JF
4. Amount rs
5. Date cr.
6. Particular
7. JF
8. Amount rs
Posting
It is the act of transferring recorded in journal into ledger. In other words, the process of recording transaction into ledger is called posting. The posting in various columns of ledger is done as follows:
1. Date: the date of transaction as mentioned in journal is recorded.
2. Particulars: in this column, the account which was credited in journal is recorded with prefix 'to'.
3. Journal folio (JF): the page number of journal from which the entry is being posted is recorded here, if available.
4.    Amount: in this column, the debit amount of the ledger account is recorded.
5.    Date: the date transaction same as in journal is recorded.
6.    Particular: in this column, the account was originally debited in journal is recorded with prefixed "BY".
7.    Journal foilo (JF):  the page of journal entry is recorded here, if available.
8.    Amount; in this column, the credit amount of ledger account is recorded.
Rules for posting
1.    First make sure the ledger account being opened.
2.    Then,  if ledger account being opened is debited in journal, posting should be made in debit side with opposite account i.e. account credited and
3.    If the ledger account being opened is credit in journal, posting should also be made in credit sale of the account with opposite account i.e. debit account in journal.
Posting of opening entry
To transfer the assets, liabilities and capital of last year to this year, an   opening journal entry is passed. In other words, it recorded the beginning assets, liabilities and capital of business.
Posting without journal entroes

Ledger account can also be maintained without passing journal entries. But transactions should be journalized in mind and remembered the account to be debited and credited and other procedure is same. However, instead of journal folio (jf), ledger folio (LF) is recorded since journal entries will not be passed. For example, salary paid rs. 1000,
Balancing of ledger accounts
After posting transaction journalized into ledger account, all the ledger account must be closed to find their and posting on the business at the end of certain period. For example, if the ledger has to determine the amount of cash balance at the end of certain period. Then he has to prepare cash a/c and debit and credit of the account are totaled. The difference between two sided (i.e. dr, and cr.) is balance of the account. The process is called balance of ledger accounts.

Balancing of account is done periodically i.e. monthly, quarterly, semi-annually as per requirement. Normally, monthly balancing is common in practice.

Debit side of an account greater than credit side
In this case, the debit of an account will be greater than credit total. It is known as debit balance of an account.  Here the excess debit in the credit side of the account as by balance C/D and closed the account in the beginning of next period. The balancing figure is brought down as to balance b/d.
Credit side of an account greater than debit side
In this case, the credit total of an account is greater than debit total. It is knows as credit balance of an account. Here excess credit amount is entered in the debit side of account as " to balance c/d' and closed the account. In the next period, the balancing figure is brought down as "By balance b/d".