What is a Ledger?


Ledger

A ledger in accounting is also known as the principal book of accounts as well as the book of final entry. It is a book in which all accounts are maintained in a summarized and classified form. All accounts combined together become a ledger and form a permanent record of all transactions.

It is the most important book of accounting as it helps in the creation of trial balance which then acts as a base for the preparation of financial statements.

Example: An account can be either an Asset, Liability, Capital, Revenue or an Expense account. Few examples of each are Furniture, Cash, Creditors, Bank Loan, Capital, Drawings, Sales, Rent, etc.

Related Topic- What is a subledger?

Sample Format of a Ledger Account

  • It is shown in “T” format and divided into 2 columns: the left-hand side represents the debit side and the right-hand side represents the credit side.
  • The process of transferring a transaction from journal to a ledger account is called Posting. It is an essential task as it summarizes all transactions related to that account at one place.
  • Posting is made to accounts from journal entries and various subsidiary books.

 

Account Types and their Ledger Balances

 Type of Account  Normal Balance
 Assets  Debit
 Liabilities  Credit
 Capital  Credit
 Revenue  Credit
 Expenses  Debit
 Drawings  Debit

 

>Read 3 Major Financial Statements



 

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