Ledger- The Second Step of Accounting
What is ledger?
Ledger is the book in which the accounts are maintained. In general, one sheet of the ledger has one account opened on it, but, the transactions with regard to that particular account are more, the account may extend onto the next sheet. Make a note, that if one journal entry has 2 accounts involved, then it will be posted in 2 accounts. When the information is being transferred from the journal to the ledger, that particular process is known as posting. For all the entries in the journal, the ledger is considered to be the destination for all of them.
Objectives of Ledger
- To provide information about the income and the expenditure
Keeping a record of various incomes and expenditures of the business is one of the main objectives behind the preparation of ledger. Example: the total expenses during the time of the accounting period. Similarly, incomes like the interest received are posted into the interest account to find out the total earning from the interest during that time.
- To provide information about the position of assets and liabilities
For every asset and the liability, a separate ledger account is prepared. With the help of this, the effect of the assets and liabilities is known on the financial position of the business. Example: the account f debtor is prepared in order to find out the amount receivable.
- To provide information related to purchases and sales
In every firm or a business organization, there are various events that are related to the sales and the purchases of several products. To find out the aggregate purchase during that particular time, the purchase account is prepared for the same and similarly for the others.
- To help in preparing a trial balance
The trial balance is prepared with the help of general information given by the ledger account. Thus, the ledger account is very important for the trial balance.
Method of ledger posting
After the transactions of the business have been recorded in the journal, now the ledger has to be prepared. Without any mistake, all the entries have to be posted into the ledger. Ledger is considered to be the book of final entry. Every journal entry is transferred to a distinct account. After all the entries have been posted, the balance of every account.
The balance of the asset or expense account is calculated by deducting the total credits from that of the debits
The balance of the liability or the equity account is calculated by subtracting the debits from the total credits.
A software can also be used in order to record the ledger in the form of the spreadsheet. But, this method would consume a good amount of time and hence, there are high chances for the errors to occur at the time of posting from journal to ledger.
Also read: JOURNAL – The Base of Accounting