Tally Solutions |Updated on: September 13, 2022
- What is general ledger?
- Specimen of ledger accounts
- Steps to prepare general ledger
- Posting
- Balancing an account
- Example of general ledgers
After passing the entries in the journal-register, the transactions are classified and grouped for the preparation of accounts. The principal book which contains all set of accounts (viz. nominal, personal and real accounts), is known as Ledger. It is also known as principal books of account in which the account-wise balance of each account is determined.
What is general ledger?
General Ledger is a process of summarizing all the financial transaction of an account for a given period in a prescribed format with the objective to ascertain the closing balance at the end of the given period.
What is ledger account?
Ledger account and general ledger account are interchangeably used to denote the account report that contains a record of all business transactions related to an account. For every account, you deal with, a separate ledger account is prepared that summarizes the closing balance for a given period. For example, for all transactions related to a bank, a bank ledger account is prepared.
Some of the most common ledger accounts are: bank account, bank cash, debtors, creditors, fixed assets, and more.
What is ledger accounting?
A ledger accounting is an account or record utilized to keep bookkeeping entries for balance-sheet and income-statement transactions. Some of the entries for the accounting ledger includes cash, accounts receivable, investments, inventory, accounts payable and more. They are maintained for all sorts of balance sheet and income statement transactions.
Specimen of ledger accounts
A general ledger account has two sides debit (left part of the account) and credit (right part of the account). Each of the general ledgers debit and credit side has four columns.
- Date
- Particulars
- Journal folio i.e. reference number of the page from where the entries are taken for posting and
- Amount
Date | Particulars | Journal Folio | Amount (Rs.) | Date | Particulars | Journal Folio | Amount (Rs.) |
Steps to prepare general ledger
Posting
The methodology of transferring the debit and credit items from journal to classified accounts in the ledger is known as posting. The posting of the ledger should be followed in accordance with the rules.
Rules for posting of entries in the ledger accounts
- A separate individual account is opened in the ledger book for each account and entries from the ledger are posted to respective accounts accordingly.
- It is a practice to use the words ‘To’ and ‘By’ or ‘Dr’ or ‘Cr’ while posting transactions in the ledger. The word ‘To’ or ‘Dr’ is used in the particular column with the accounts written on the debit side while ‘By’ or 'Cr' is used with the accounts written in the particular column of the credit side.
- The concerned account debited in the journal should also be debited in the ledger, but the reference should be of the respective credit account.
Balancing an account:
At the end of each month or year or any particular day, it is necessary to ascertain the closing balance in an account.
This is not a too difficult thing to do; suppose a person has bought goods worth 1,000 Bangladeshi taka and has paid only 850 Bangladeshi takas, he owes 150 Bangladeshi takas and that is the closing balance in his account.
Therefore, to ascertain the balance in any account, you must total the sides and ascertain the difference. The difference is the closing balance of the account. If the credit side total is higher than the debit side total, it is a credit balance and otherwise, it is a debit balance.
The credit balance is written on the debit side as, “To Balance c/d”. Here, ‘c/d’ refers to balance carried down. By doing this, two sides will be equal. The totals of both the debit and credit side are written on the two sides opposite one another. Then the credit total balance is written on the credit side as “By balance b/d (i.e., brought down)”. This becomes the opening balance for the new period.
Similarly, the debit balance is written on the credit side as “By Balance c/d”, the totals then are written on the two sides. Just like the credit side, the total debit balance is written on the debit side as, “To Balance b/d”, as the opening balance of the new period.
What's the Difference Between a Journal and a Ledger
Journal | Ledger |
Journal refers to the subsidiary book of accounts that documents transactions. | Ledger refers to the main book of accounts that categorizes transactions recorded in a journal. |
The journal transactions get documented in sequential order as per their occurrence. | The ledger organizes the transactions from the journal under the individual related accounts. |
Each journal entry has precise details of the transaction. | The ledger does not have details of each transaction. |
The journal doesn't provide the complete results of a transaction | The ledger provides the result of account transactions. |
The journal doesn't have a direct role in preparing financial statements and reports like profit and loss accounts and more. | Whereas balances from different ledgers help create statements like Profit and Loss Account or Balance Sheet. |
Examples of general ledger
ABC and Co., a partnership firm registered in Kenya had the following entries to be posted in its ledger books.
2019 | Particulars | Amount |
Jan 1 | Opening stock of Raw material | 320 |
May 10 | Purchase of Raw material by cheque | 900 |
Oct 11 | Purchase of Raw material on credit from XYZ Co., | 1,280 |
Nov 2 | Returned goods purchased from XYZ Co., | 340 |
As discussed above, the first step in the process of preparing general ledger is posting. The following are ledger posting of ABC and Co.
Posting the above entries in the books of ABC and Co.,
(Dr). Raw Material A/c. (Cr)
Date | Particulars | Amount | Date | Particulars | Amount |
1.1.15 | To balance b/d | 320 | 31.12.15 | By XYZ Co., | 340 |
10.5.15 | To Bank | 900 | 31.12.15 | By balance c/d | ??? |
11.10.15 | To XYZ Co., | 1280 | |||
1.1.16 | To balance b/d. | ??? |
Once the posting is done the next step balancing accounts. This step will help you determine the closing balance of ledger accounts for a given period. In the above example, we need to find out the closing balance of Raw material A/C (Indicated with a question mark(?))
Balancing of accounts in books of ABC and Co.,
Particulars | Amount |
Debit side totals (320+900+1280) | 2470 |
Credit side totals | 340 |
Ideology (Debit Side total > Credit side total) then the balance is | Debit balance |
Rule 1: Rule of balancing (Debit balance to be written on the credit side as By balance c/d which comes to) [ 2,470 ( - ) 340] | To balance c/d = 2,130 Kenyan shillings |
Rule 2: Balances to be written on both sides (in the given example on) | Debit Side as By balance b/d = 2,130 |
After balancing, the following is the completed general ledger account of Raw Material A/c of ABC and Co.
Dr). Raw Material A/c. (Cr)
Date | Particulars | Amount | Date | Particulars | Amount |
1.1.15 | To balance b/d | 320 | 31.12.15 | By XYZ Co., | 340 |
10.5.15 | To Bank | 900 | 31.12.15 | By balance c/d | 2130 |
11.10.15 | To XYZ Co., | 1280 | |||
Total | 2470 | Total | 2470 | ||
1.1.16 | To balance b/d. | 2130 | |||
Watch Video on How to Create Ledgers in TallyPrime
FAQ:
What is a general ledger?
General ledger refers to the primary accounting record of a company.
How do you create a ledger account?
If you are using TallyPrime, you can easily create a ledger account from:
Create menu>Ledger>Provide the ledger name and other details>save
Is a general ledger part of the double-entry bookkeeping method?
Double-entry bookkeeping refers to the concept wherein every accounting transaction affects the business’s finances in two ways. The general ledger is the record of the two sides of each transaction.
What are the types of ledger account?
Typically, there are three types of ledger account -general, debtors, and creditors.
Learn More
Capital Lease, Life Cycle Costing, Budgeting vs. Forecasting, Royalty in Accounting, Auditing Process, External Audit
As an accounting expert, I possess a comprehensive understanding of the concepts and practices outlined in the provided article about general ledger, ledger accounts, ledger accounting, posting, balancing accounts, and the differences between a journal and a ledger. Here's an explanation of each concept mentioned in the article:
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General Ledger:
- A primary accounting record summarizing all financial transactions for a specific period in a prescribed format to determine closing balances.
-
Ledger Account:
- An account report containing records of business transactions related to specific accounts. Each ledger account summarizes the closing balance for a given period.
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Ledger Accounting:
- Recording bookkeeping entries for balance sheet and income statement transactions. It includes accounts like cash, accounts receivable, investments, inventory, and accounts payable.
-
Specimen of Ledger Accounts:
- Demonstrates the format of a general ledger account with debit and credit sides, each having columns for date, particulars, journal folio (reference number), and amount.
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Steps to Prepare General Ledger:
- Involves posting, transferring debit and credit items from the journal to classified accounts in the ledger following specific rules, and balancing accounts to determine closing balances.
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Posting:
- The process of transferring journal entries to respective ledger accounts, following guidelines like opening separate accounts for each entry and using 'To'/'Dr' for debit side and 'By'/'Cr' for credit side.
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Balancing an Account:
- Calculating the closing balance by totaling both debit and credit sides and determining the difference. If the credit side total exceeds the debit side, it indicates a credit balance, and vice versa.
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Difference Between a Journal and a Ledger:
- Journal records transactions sequentially, whereas the ledger organizes these transactions under individual accounts. The journal contains detailed transactional information, whereas the ledger shows the result of account transactions.
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Examples of General Ledger:
- Provides a practical example of entries for a company and demonstrates the posting and balancing process for a specific account.
Additionally, the article touches upon common ledger accounts like bank account, bank cash, debtors, creditors, and fixed assets, along with instructions on how to create ledger accounts in TallyPrime and explanations regarding double-entry bookkeeping.
The FAQ section clarifies queries about general ledger creation, types of ledger accounts, and the relationship of the general ledger to double-entry bookkeeping.
For further learning, the article hints at more advanced accounting topics like Capital Lease, Life Cycle Costing, Budgeting vs. Forecasting, Royalty in Accounting, Auditing Process, and External Audit. These topics expand the understanding of accounting practices beyond basic ledger management.
