What is a ledger? And how to perform its posting?
Answers
Answer:
The process of transferring the entries from journal to respective ledger accounts is called ledger posting. Balancing of ledgers is carried to find out differences at the end of the year. Ledger posting is entering information in the ledger, in respective accounts from the journal for individual records.
Answer:
The journal consists of all entries, but what if we are asked about transactions with a particular account? We can’t count and find the total amount or number of transactions as they are probably done on different dates. Hence, different accounts are made to record transactions related to that particular account. In the end, balancing of the ledger is done to get the status of the particular ledger at the end of the financial year.
Ledger Posting
After the transactions are recorded in the journal, it is then posted in the principal book called as ‘Ledger’. The process of transferring the entries from journal to respective ledger accounts is called ledger posting. Balancing of ledgers is carried to find out differences at the end of the year.
Ledger posting is entering information in the ledger, in respective accounts from the journal for individual records. The account debited is posted on the debit side and the account credited is posted on the credit side of the same account.
This process is carried throughout the year and at the end of the financial year the ledger accounts are closed and are totaled and balanced. This process is called the balancing of the ledger accounts.
Rules for posting of entries in the ledger
A separate account is opened for each account and entries from the journal are posted in respective ledger account accordingly.
The words like ‘To’ and ‘By’ are used while posting the entries in the ledger accounts. ‘To’ is used when accounts are posted in the debit side column of a particular account. ‘By’ is used when accounts are posted in the credit side column of a particular account. These words may not have meaning but are used to represent the debit and credit accounts.
The account which is debited in the journal should also be debited in the ledger book but the reference should be of respective credit account.
Balancing of Ledger
At the end of every accounting year all the accounts which are operated in the ledger book are closed, totaled and balanced. Balancing of ledgers means finding the difference between the debit and credit amounts of a particular account i.e. heavier total and lighter total difference and recording that difference amount on the lighter total side.
Steps for Balancing Ledger Account
First of all, calculate the totals of debit and credit columns separately on a rough sheet to avoid mistakes. Find out the difference between the heavier total and lighter total by subtracting the lower from higher. The difference is called a Balance amount.
If the total of the debit side is heavier than that of the credit side, the balance is called as “Debit Balance” and is written on the credit side (the side with lower amount) of that particular account as “By Balance c/d” or “By Balance c/FD”. Here, c/d means carried down and c/FD means carried forward.
Similarly, if the total of the credit side is more than that of debit side total, the balance is called “Credit Balance”. The difference amount is written on the debit side of the account as “To balance c/d” or “To balance c/fd”
Once we get the heavier total it should be written in both the columns’ total. Draw double lines across the total below the amounts which indicates the account is closed and balanced.
Last year’s closing balance is the opening balance of the current year. So, if there is debit it should be shown on the debit side of a particular account as “To Balance b/d” or “To Balance b/fd”. Here, b/d means brought down and b/fd means brought forward.
Note: Nominal accounts are not balanced; the balances are transferred to profit and loss account.
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