What is Ledger in Accounting

What is Ledger in Accounting

What is Ledger in Accounting

An accounting ledger is a type of account or document that is used to keep track of bookkeeping entries for balance-sheet and income-statement transactions. Cash, accounts receivable, investments, inventory, accounts payable, accrued expenses, and customer deposits are included in financial ledger journal entries.

Accounting ledgers are used to record both balance sheet and income statement transactions. Asset ledgers, such as cash or accounts receivable, are included in balance sheet ledgers. Revenue and expense ledgers are included in income statement ledgers.

Types of Ledger

Following are the type of ledger:

Sales Ledger:

The Sales Ledger is a ledger in which the company records the sale of merchandise, commodities, or the expense of goods delivered to consumers. This ledger represents the sales earnings and income statement.

Purchase Ledger:

The Purchase Ledger is a ledger in which the organization organizes the purchase of commodities, items, or goods from other companies. It shows how much money the organization paid to other companies.

General Ledger:

There are two kinds of General Ledger:

  1. Nominal Ledger
  2. Private Ledger

The nominal ledger records wages, revenue, depreciation, insurance, and so on. And a private ledger provides private records such as salaries, benefits, capitals, and so on.

Difference Between Journal and Ledger:

Both the journal and the ledger are major elements of the accounting process. Company transactions are primarily reported in the journal and then posted to the ledger under the appropriate heads. Many financial transactions are recorded in both the journal and the ledger.

Financial transactions are recorded in a journal using the double-entry method. That is sometimes referred to as the primary accounting book or the book of original entry.

The ledger, on the other hand, is referred to as the Principle book of accounting. It keeps the journal information in the “T” format. It is used to generate the trial balance, which serves as the foundation for financial reporting such as the income statement and balance sheet.

Journalizing refers to the method of recording transactions in a journal, while posting refers to the process of moving entries from the journal to the ledger.

A journal’s transactions are recorded in chronological order, making it easier to distinguish the transactions that are correlated with a particular business day, week, or billing cycle. The organization of entries within a ledger, on the other hand, is more concerned with grouping like transactions together into separate accounts for the purposes of analyzing the records for internal financial and accounting purposes.

Format of Ledger Account:

The ledger account is formatted in T. It’s split into two parts. The left side is the debit side, and the right side is the credit side. There are four columns on each side. The account’s name or title is placed in the top middle, and the details are entered into the ledger. The format of the ledger account is mentioned below:

Format of Ledger Account

The below are the details contained in the ledger’s different columns:

Date: The transaction’s date is reported in this column.

Particulars: This column records the transaction that has been debited or paid. On the debit line, entries begin with ‘To,’ and on the credit side, entries begin with ‘By.’

Journal Folio (J.F.): The page number of the journal or subsidiary books from which the entry was posted to the ledger is noted in this column.

Amount: The transaction’s amount is reported in this column.

What is Ledger Balance?

A bank computes a ledger balance at the close of each business day, which contains both withdrawals and deposits to determine the total amount of money in a bank account. The ledger balance is the starting balance of the bank account the next morning and remains constant throughout the day.

The ledger balance, which varies from the available balance in an account, is also known as the current balance. When you log into your online banking, you will be able to see the current balance—the balance at the start of the day—as well as your remaining balance, which is the cumulative sum at some time during the day.

The ledger balance is used in banking and accounting for reconciliation.

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