Ledger Account Meaning:
- Ledger Account is a journal in which a company maintains the data of all the transactions and financial statement.
- Company’s general ledger account is organized under the general ledger with the balance sheet.
- Any financial statement related to the financial position of the company emerges only from the accounts.
- The Ledger account is thought of the book that has all the accounting information of the company.
Types of Ledger:
- Sales Ledger – Sales Ledger is a ledger in which the company maintains the transaction of selling the products, services or cost of goods sold to customers. This ledger gives the idea of sales revenue and income statement.
- Purchase Ledger – Purchase Ledger is a ledger in which the company organizes the transaction of purchasing the services, products, or goods from other businesses. It gives the visibility of how much amount the company paid to other businesses.
- General Ledger – General Ledger is divided into two types – Nominal Ledger and Private Ledger. Nominal ledger gives information on expenses, income, depreciation, insurance, etc. And Private ledger gives private information like salaries, wages, capitals, etc. Private ledger is not accessible to everyone.
Ledger Account Examples:
Assets
Cash
Land
Accounts receivable
Equipment
Liabilities
Debt
Accounts Payable
Loans
Stock
Stockholders Equity
Common Stocks
Retained Earnings
Operative Revenues
Sales
Services Fees
Operating Expenses
Salaries and wages
Office Expenses
Depreciation Expense
Ledger Posting:
Whenever a transaction takes place it is denoted and recorded in the journal in the form of the journal entry. Furthermore, this entry is posted again in their respective journal accounts.
This is done from the journal under the double entry principle. This is known as the ledger posting. There are some rules which you have to adhere to while writing the journal entries for the following accounts.
how to create your ledger and put it to use:
Step 1: Set Up Ledger Accounts
Start with the 5 account types: Assets, Liabilities, Equity, Revenue, and Expenses (and perhaps Other Income and Expenses). Within each account type, list the accounts you need. For example, under the Asset account type, you’ll create a Cash account and an Accounts Receivable account.
Step 2: Create Columns
Make columns on the far left of the page for the date, transaction or journal entry number, and description.
Make columns on the right side for debits, credits, and running balance. Debits increase asset and expense accounts and decrease liability, revenue, and equity accounts. Credits increase liability, revenue, and equity accounts and reduce assets and expenses.
Step 3: Record Financial Transactions
Day-to-day, record your business transactions as they occur. If you’ve made a journal entry, post it to the ledger immediately.
Step 4: Create a Trial Balance
Summarize the ending balances from the general ledger and present account level totals to create your trial balance report. The trial balance totals are matched and used to compile financial statements.
Principles for writing Journal Entries in Ledger Account
- Liabilities: This decreases on the side of debt and increases on the credit side.
- Assets: In assets, the figure increases on the left side or you can say the debit side. While this decreases on the credit size or the right side.
- Capitals: This follows the same rule as liabilities.
- Gains or Income: In this, there is a decrease on the debit side. Also, there is an increase in the credit side.
- Expenses: The expenses in the ledger decreases on the credit side while increases on the debit side.
There are some rules that students should understand according to the nature of debit and credit.
