Meaning and format of the ledger
The ledger is the principal book of accounts. It holds a separate account for each person, asset, liability, capital, revenue and expense. It is called the book of final entry because entries reach it after the journal or subsidiary books.
Format (T-account): Dr side: Date | Particulars | J.F. | Amount ₹. Cr side: Date | Particulars | J.F. | Amount ₹. J.F. (journal folio) shows the journal page from which the entry came; L.F. (ledger folio) in the journal shows the ledger page it went to — this cross-reference helps checking.
Types of accounts
- Personal: natural persons (Ravi), artificial persons (a bank, a company), representative (outstanding salary, capital).
- Real: assets like cash, machinery, goodwill.
- Nominal: expenses, losses, incomes, gains.
Posting from the journal and subsidiary books
Posting is transferring entries from the books of original entry to ledger accounts.
From the journal
- Open the account to be debited; write the date and, on the debit side, "To" + the name of the account credited, with the amount.
- Open the account to be credited; on the credit side write "By" + the name of the account debited, with the amount.
- Write the journal page in J.F. and the ledger page in the journal's L.F.
For a compound entry, each debited account shows the credited account(s), and vice versa.
From subsidiary books
- Purchases book: each supplier's account is credited individually ("By Purchases"); the periodic total is debited to Purchases A/c ("To Sundries as per Purchases Book").
- Sales book: each customer debited individually; total credited to Sales A/c.
- Return books: purchases return total credited to Purchases Return A/c, suppliers debited; sales return total debited to Sales Return A/c, customers credited.
- Cash book: it is itself a ledger account; only the other side of each entry is posted to the ledger (e.g. rent paid → Rent A/c Dr "To Cash").
- With GST, Input/Output GST columns in the books are totalled and posted to the GST accounts.
Balancing ledger accounts
- Total both sides of the account.
- Find the difference.
- Write it on the smaller side as "Balance c/d" (carried down) so both totals become equal.
- Write the equal totals on the same line on both sides.
- Bring the balance down on the opposite side at the start of next period as "Balance b/d" (brought down).
If the debit side is bigger, the account has a debit balance (assets, expenses, drawings). If the credit side is bigger, a credit balance (liabilities, capital, incomes). Nominal accounts are not balanced but closed by transfer to the trading or profit and loss account.
Key formulas and definitions
- Balance = Bigger side total − Smaller side total
- Debit side > Credit side → Debit balance
- Credit side > Debit side → Credit balance
- Balance c/d (this period) = Balance b/d (next period, opposite side)
Worked examples
1. Post: Ravi started business with cash ₹50,000.
Cash A/c (Dr side): To Capital A/c ₹50,000. Capital A/c (Cr side): By Cash A/c ₹50,000.
2. Post: bought furniture from Arora Traders on credit ₹12,000.
Furniture A/c (Dr): To Arora Traders ₹12,000. Arora Traders A/c (Cr): By Furniture A/c ₹12,000.
3. Cash A/c: Dr items 50,000 and 18,000; Cr items 6,000, 9,000 and 20,000. Balance it.
Dr total 68,000; Cr total 35,000. Balance c/d ₹33,000 on the Cr side; both totals ₹68,000. Next period: To Balance b/d ₹33,000 (debit balance).
4. Sales book: Meena ₹8,000, John ₹5,000, Fatima ₹7,000. Show posting.
Meena A/c Dr ₹8,000, John A/c Dr ₹5,000, Fatima A/c Dr ₹7,000 (each: To Sales A/c). Sales A/c Cr ₹20,000: By Sundries as per Sales Book.
5. Creditor Sunil: goods bought on credit ₹25,000; returned ₹2,000; paid ₹15,000. Find the balance.
Cr side 25,000; Dr side 2,000 + 15,000 = 17,000. Balance c/d ₹8,000 on the Dr side → credit balance ₹8,000 (still owed to Sunil).
6. Post the compound entry: Salary A/c Dr 10,000; Rent A/c Dr 5,000; To Cash 15,000.
Salary A/c Dr: To Cash 10,000. Rent A/c Dr: To Cash 5,000. Cash A/c Cr: By Salary 10,000; By Rent 5,000.
Common mistakes
- Writing the same account's name in its own ledger (e.g. "To Cash" inside Cash A/c). Write the other account's name.
- Putting Balance c/d on the bigger side. It always goes on the smaller side.
- Posting each entry of the sales book to the Sales account instead of the total.
- Balancing nominal accounts and carrying them forward. They are closed to the P&L account.