Why We Need a Ledger
The journal records transactions chronologically — perfect for an audit trail, useless for answering questions like "what's my cash balance right now?" You'd have to scan every page looking for cash entries.
The ledger fixes that. It collects all the entries for one account (Cash, Sales, Furniture, etc.) into one place, so a single glance tells you that account's current balance. Every account in the business has its own ledger page.
Standard Format of a Ledger Account
A ledger account has two sides — debit on the left, credit on the right — and looks like this:
| Cash Account | |||
|---|---|---|---|
| Date | Particulars / J.R. / Amount | Date | Particulars / J.R. / Amount |
| Dr. (left side) | Cr. (right side) | ||
| Jan 1 | To Capital A/c · 100,000 | Jan 2 | By Furniture A/c · 20,000 |
Conventions:
- Debit-side entries start with the word "To"
- Credit-side entries start with the word "By"
- The "Particulars" column shows the other account from the original journal entry
- "J.R." is the Journal Reference — page number in the journal
Posting from Journal to Ledger
Posting just means copying each part of a journal entry into the relevant ledger account. Steps:
- Find the ledger account for the first debit in the journal entry
- On the debit side, write the date (same as transaction date, not posting date)
- In particulars, write "To [name of the credited account]"
- In J.R., write the journal page number
- Enter the amount
- Now flip to the ledger account for the credit and repeat — but on the credit side, using "By [name of the debited account]"
Balancing an Account
The "balance" of an account is the difference between the two sides. It's written on whichever side is smaller to make them equal — and that balance carries forward to the next period.
Rules for Balancing
- Total both columns separately (on a scratch sheet first)
- Calculate the difference between the two totals
- Write the difference on the smaller side as "By/To Balance c/d" (carried down)
- Total both sides — they should now be equal — and draw a double line
- On the opposite side, below the double line, write "By/To Balance b/d" (brought down) for the next period
| If… | Balance is called | Indicates |
|---|---|---|
| Total debits > total credits | Debit balance | Asset, expense, or money owed to us (if personal) |
| Total credits > total debits | Credit balance | Liability, income, capital, or money we owe (if personal) |
| Total debits = total credits | Nil balance | Account is settled |
Journal vs Ledger — Key Differences
| Basis | Journal / Books of Original Entry | Ledger |
|---|---|---|
| Recording | Transactions enter here first — book of primary entry | Entries transferred from journal — book of final entry |
| Narrations | Included after every entry | Not recorded |
| Order | Chronological | Analytical (grouped by account) |
| Final accounts | Cannot prepare directly from the journal | Final accounts prepared from ledger balances |
| Accuracy check | No direct check possible | Tested through trial balance |
| Process name | Journalising | Posting |
Closing Accounts at Year End
- Personal accounts — a debit balance means that party owes the business; a credit balance means the business owes them. Balance is carried forward to the next year.
- Real accounts — assets always show debit balances and are carried forward.
- Nominal accounts — these are not carried forward. At year-end their balances are transferred to the Trading and P&L Account, after which the account is closed.
Every ledger account in iAccounting is live — click any voucher and the ledger updates instantly. You can drill into any number on a report all the way down to the source voucher in two clicks.
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