General Ledger Format in Accounting

Managing business is onerous, it is not that easy as it seems to be. Lots and lots of transactions are involved and many other things, that could end up with a mess. So, there is a strong need of a way to manage all the transactions and that way is, what I m going to discuss.

general ledger accounting business money balance financial

The book used to record business transactions is called Ledger or general Ledger. It is the second step involved in the accounting process. This step of transferring the information of business transactions into the Ledger from the Journal is called Posting.  Business accounting includes a process to know about the position or financial status of the business & this process or book is known as the Ledger. This helps to know whether your business is in profit or loss. It also helps to know what needs to be improved in the business.

Transactions – Journal – Ledger

 

                                               ACCOUNTING
                                                  PROCESS
               BUSINESS (to know the performance of the business)
    PROFIT & LOSS (to improve the financial position of the business)

 

In the first step of accounting, we record transactions in the journal called journal entries. After journal entries we transfer or post these entries into the ledger. It is also called final entry. It becomes easy to make a trial balance with the help of ledger.

All transactions are recorded in journal entries. Mixed recording are also recorded in journal entry.

Ledger is divided into two parts left & right side:

  • Debit is recorded on the left side
  • Credit is recorded on the right side.

Ledger is also known as the principal book or book of entry.

  • All entries recorded in Journal entries are classified, posted, transferred in the ledger.
  • All transactions related to a particular account are recorded at one place in the ledger.

Ledger includes a T-shape account.

Ledger usually includes two entries but sometimes it has three accounts in the case of cash discounts. So, in that case, it is called compound or combined ledger.

Ledger contains a record of all business transactions such as:

Record of all the transactions is converted into electronic form.

TYPES OF LEDGER

To divide the Ledger into parts is not required for the small scale businessman, whose accounts are small in number. But when the accounts are large in numbers as in large scale business the businessman can divide the Ledger into parts:-

  • Sale Ledger or Debtor ledger
  • Purchase Ledger or Creditor Ledger
  • General Ledger 
  1. SALE LEDGER OR DEBTOR LEDGER– Customers to whom goods are sold on credit are recorded in this account.
  2. PURCHASE LEDGER OR CREDITOR LEDGER– Suppliers from whom goods are purchased on credit are recorded in this account.
  3. GENERAL LEDGER– All accounts except debtor’s and creditor’s account are recorded in this General Ledger.

 RULES OF LEDGER

The account which is Debited is recorded on the left side while the account which is Credited is recorded on the right side. In Ledger:

DEBITED

CREDITED

Assets increases debited

Assets decrease credited.

Expenses increases debited

Expenses decrease credited.

Liabilities decreases debited

Liabilities increases credited.

Income decreases debited

Income increases credited.

Capital decreases debit

Capital increases credited.

How to Create General Ledger/ Posting method of Transactions

  • This accounting book includes a T-Shape account. The accounts have two sides one is the debit on the left side of the account and the other is the credit on the right side of the account.
  • The format of the Ledger involves eight columns, four columns are for debit entries on the left side while the other four columns are for credit entries on the right side. The format of Ledger is represented as follows:

 Format of General Ledger

Format of ledger includes Date, Particulars, Journal Folio, Amount. It is same on both sides: Debit and credit sides.

  1. DATE– Write date in the account & it should be noted from the Journal book.
  2. PARTICULARS– In this, the name of the account which has Debited and the account which has Credited is written on the proper side. Every entry on the Debit side of the account will be prefixed by the word “To” while Credit side of the account is prefixed by the word “By”.
  3. JOURNAL FOLIO– It is meant for writing the page number of journal or source-book, from where the posting is being done.
  4. AMOUNT– Amount of account to Debited and Credited will be recorded in this column on the respective side.

Format Of Ledger

Date Particulars J/F Amount Date Particulars J/F Amount
  •  First, the Debit entries are transferred from the journal to the Ledger.
  • Note the transaction date of the journal in the Ledger in the date column.
  • Year is written at the top of the date column, then after a year the month and date are written, on which the transaction has been done.
  • In the particulars column write the name of the account.
  • In the journal folio column write the page number of journal, from where the posting has been done.
  • Write the amount of the account to be debited in the amount column.
  • Follow the same procedure to post the opposite of the debit account i.e., Credit account.
  • At the end of the month/year, the balance on both sides should be equal and the excess balance is written over the closing balance at the end of the month.
  • The closing balance is then forwarded to next year, as beginning balance.

Examples of Ledger

  • 2009                    
  • May 1. Capital started business with cash 60,000
  • May 2. Purchased goods for cash 1,500
  • May 5. Purchased furniture for cash 5,000
  • May 7. Bank account opened & cash deposited 5,000
  • May 9. Printer purchased for cash 4,000
  • May 10. Sold goods to Ravi for cash 2,000.

 

JOURNAL

Date Particulars L/F Dr. Amount Cr. Amount
2009
May 1 Cash account……………………Dr. 60000
To Capital account 60000
(Being capital started business with cash)
May 2 Purchases account………………Dr. 1500
To Cash account 1500
(Being goods purchased for cash)
May 5 Furniture account……………….Dr. 5000
To Cash account 5000
(Being furniture purchased for cash)
May 7 Bank account……………………Dr. 5000
To Cash account 5000
(Being cash deposited into bank)
May 9 Printer account………………….Dr. 4000
To Cash account
(Being printer purchased for cash) 4000
May 10 Cash account……………………Dr. 2000
To Sales account 2000
(Being goods sold for cash)
Total c/f
77500 77500

 

  • Posting of journal entries into Ledger:

Ledger

Cash Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2009 Rs. 2009 Rs.
May 1 To Capital account 60000 May 2 By Purchases account 1500
May 10 To Sales account 2000 May 5 By Furniture account 5000
May 7 By Bank account 5000
May 9 By Printer account 4000

 

Capital Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2009 Rs.
May 1 By Cash account 60000

 

Purchase Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2009 Rs.
May 2 To Cash account 1500

 

Furniture Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2009 Rs.
May 5 To Cash account 5000

 

Bank Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2009 Rs.
May 7 To Cash account 5000

 

Printer Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2009 Rs.
May 9 To Cash account 4000

 

Sales Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2009 Rs.
May 10 By Cash account 2000

 

POSTING OF COMPOUND ENTRIES

When a transaction involves more than two accounts, it is recorded in a single entry and then, it is called Compound entry. It may be recorded in the following ways:-

  • By debiting one account and crediting two or more accounts.
  • By debiting two or more accounts and crediting one account.

This usually happens when a discount is allowed by the supplier or the discount is allowed to the customer.

Example of compound entries in Ledger:

  • 2011
  •  Rahul: Businessman
  • June 1. Ram a customer, paid us Rs.1000 in full settlement of Rs.1200.
  • June 3. Received cash from Ravi Rs.800 in full settlement of Rs.850.
  • June 6. Aman, a supplier, to whom we owe Rs.1000, is paid Rs.950 in full settlement.

 

Journal For Rahul

Date Particulars L/F Dr. Amount Cr. Amount
2011 Rs. Rs.
June 1 Cash a/c……………………….Dr. 1000
Discount a/c…………………..Dr. 200
To Ram 1200
(Being received cash in full settlement)
June 3 Discount a/c…………………..Dr. 800
To Ravi 50
(Being received cash from Ravi in full settlement) 850
June 6 Aman…………………………..Dr. 1000
To Cash a/c 950
To Discount a/c 50
(Being paid cash in full settlement)
Total c/f
3050 3050

 

Now, post these journal entries into the Ledger:

Ledger

Cash Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2011 Rs. 2011 Rs.
June 1 To Ram 1000 June 6 By Aman 950
June 3 To Ravi 800

 

Ram Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2011 Rs. 2011 Rs.
June 1 By Cash a/c 1000
By Discount a/c 200

 

Ravi Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2011 Rs. 2011 Rs.
June 3 By Cash a/c 800
By Discount a/c 50

 

Aman Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2011 Rs. 2011 Rs.
June 6 To Cash a/c 950
To Discount a/c 50

 

Discount Account

Date Particulars J/F Dr. Amount Date Particulars J/F Cr. Amount
2011 Rs. 2011 Rs.
June 1 To Ram 200 June 6 By Aman 50
June 3 To Ravi 50

 

Utility of a Ledger

  1. This principle book of accounting contains the important information of all the accounts of an organization unit.
  2. Individual accounts are maintained according to their nature and each account is denoted by a heading such as a furniture account, purchase accounts, etc.
  3. In this type of account-book, it becomes easy to get all information related to a particular transaction through the Ledgers.
  4. Helps in the preparation of balance sheet and in determining the profit, loss in the business.
  5. Helps in ensuring the arithmetical accuracy of the accounts by preparing the trial balance.

Why do we need Ledger/What is the importance of Ledger?

  • Journal includes transactions which are recorded date-wise. But it is not possible in Journal to know all the information about a particular account, as it will take a lot of time to have this information. So, to have the solution to this problem Ledger book is introduced in the Double Entry System where we can get this information at a single place. 
  • Ledger’s book is also known as the Principal book of the accounting system. It is very important in the business and helps businessmen to get the information that they want to know.

Advantages and Disadvantages of Ledger

Advantages Disadvantages
Classifies each transaction individually & transactions include a heading such as expense account, asset account, etc, and it makes easy for you to get the information about a particular account by using their headings. Enables to find errors of Principle.
Gives complete information of account. Requires complete knowledge, an inexperienced person cannot prepare ledger.
Helps in the preparation of financial statement, makes easy to get information about the items. Increases the chance of mistake.
Helps in the preparation of Trial balance in which you can check arithmetical accuracy of the accounts of the statements. Errors can forward to final accounts if they are not found.

 

Difference between the Journal & the Ledger

 JOURNAL          

LEDGER

  • It is the book where all the transactions are recorded date-wise.
  • It is the book where all the transactions are transferred into the separate accounts.
  • It is also called Subsidiary book.
  • It is also called Principle book.
  • It is the book of Original entry.
  • It is the book of Second entry.
  • Transactions are recorded in the Chronological order.
  • Transactions are recorded in the Analytical order.
  • Ledger folio is written in the Journal.
  • Journal folio is written in the Ledger.
  • The process of recording transactions into the Journal is called Journalising.
  • The process of transferring the record of transactions from the Journal to Ledger is called Posting.
  • The format of the Journal includes Date, Particulars, Ledger folio, Debit amount, Credit amount.
  • The format of Ledger is “T” format which includes Date, Particulars, Amount in each side.
  • Balancing is not required in Journal.
  • Balancing is required in Ledger.
  • It includes Narration which must be written in Journal to know the nature of the entry.
  • Ledger Narration is optional.

 

       

       

       

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