HOW TO POST TRANSACTIONS INTO LEDGERS? Part-1

WHAT IS LEDGER POSTING?

After all the transactions are journalized, the entries in the journal are transferred to the appropriate accounts in the ledger to know the exact position of each account on any particular date. Ledger is the most important book among the books being maintained by business firm. It is also called “Book of final entry”.

Ledger may be defined as a book which contains records of all transactions permanently in a summarized and classified form. It is a book which facilitates recording of all types of transactions related to personal, real and & nominal accounts separately. The process of transfer is called “Ledger Posting”.

Types of ledger accounts:

There are mainly four types of ledger accounts. They are as follows:
1. Self ledger: As business and businessmen is a separate entity separate book is maintained for businessmen.
2. General ledger: It can be real account or nominal account as it is an account for assets, expenses and incomes of the firm.
3. Debtors ledger: It is a personal account prepared when a person purchase goods on credit from the firm. Business gives debts to other and will receive cash in future.
4. Creditor ledger: It is a personal account prepared when goods are supplied on credit to the firm. Business takes debts from other and is liable to pay the debts in future.
Ledger account has the shape of the English alphabet “T” each account in the ledger is divided into two equal parts. The left hand side of the account is known as ‘Debit’ side denoted by “Dr” and the right hand side is called ‘Credit’ side denoted by “Cr”. Each of the two sides is further divided into four columns namely, date, particulars, J.F no and amount.

A ledger account is ruled as follows:

Points to be remembered while posting into ledger:

1. After recording in the journal, a separate account is to be opened for each accounts appearing in journal.
2. For all the transactions relating to any particular account, only one account should be opened.
3. The name of account should be written at the top and in the centre of each account.
4. The word ‘Dr’ should be written at the left hand side indicating debit side of an account and ‘Cr’ should be written at the right hand side of each account indicating credit side of an account.
5. All the journal entries should be posted to the ledger accounts in the order of their dates.
6. While posting in any ledger account, the name of that account should not appear either on the debit or on the credit side of that account.
7. The account which is debited in journal, the posting in ledger will also be made on the debit side of that account and the account which is credited in the journal, the posting in the ledger will also be on the credited side of that account, but with the alternate account name as the case may be.

Balancing of an Account:

1. After posting in to ledger the next stage is to balance the account. Balance of an account is the difference between the total of debits and total of credits appearing in an account as “Balance c/d”.
2. It may show a debit balance or credit balance or nil balance.
3. When the total of debit side is greater than the total of credit side, it indicates debit balance. It is written on credit side “By Balance c/d”.
4. “By Balance c/d” on credit side is bought forward to the next month as “To Balance b/d on debit side of that account.
5. When the total of debit side is less than the total of credit side, it indicates debit balance. It is written on debit side as “To Balance c/d”.
6. “To Balance c/d” on debit side is bought forward to the next month as “By Balance b/d on credit side of that account.
7. When both the sides are equal the account shows no balances.

In this article I will show you an example of self ledger and general ledger accounts and in my next article, how to post transactions into ledger? Part - 2, I will give you an example of debtor account and creditor account. Ok! Let’s do it.😄

Example problem:

Solution:

After journalizing you can see there are 7 different accounts involved, here is the explanation for your better understanding:

Note: cash account, bank account is opened once ☝️and all the related transaction will be posted in that account. You cannot open separate cash account or bank account for every transaction.
Step – 2: Posting into ledger A/c

First all cash transactions should be posted in cash a/c such as transaction on Jan 1, 3, 18, and 30.

Note: In cash Account the word cash is not used instead the alternate account name is written like cash is coming in the business as a capital so cash account is debited as “To capital A/c”

Next there is a capital A/c of owner self ledger (personal a/c) such as transaction on Jan 1

Note: here as well capital is not used in capital account instead capital is given in the form of cash so capital account is credited as “By cash A/c”

Next cheque is involved so bank A/c is prepared (personal A/c) transaction on Jan 3, and 10

Note: first on Jan 3 bank is receiving the cash so bank account is debited as “To cash a/c” and then on Jan 10 machinery’s payment is made through cheque so bank is the giver of that payment that’s why bank account is credited as “By machinery a/c” because payment is made for machinery.

Next Machinery is an asset so separate account is opened (real account) transaction on Jan 10

Note: machinery is coming in the business so machinery account is debited as “To Bank a/c” as its payment is made through cheque.

Purchase is made so separate purchase A/c is opened as it is real account Transaction on Jan 18

Note: here goods are coming in the business so purchase account is debited as “To Cash A/c” as its payment is made with cash.

Sales is made which is for goods of the firm so sales a/c is prepared (real a/c) transaction on Jan 20

Note: as goods are going out of the business so sales account is credited as “By Cash A/c as payment received in cash.

Salaries are expenses and separate account is made (nominal a/c) transaction on Jan 30

Note: salary is an expense so debited to salaries A/c as “To cash A/c” as paid in cash.

At the end of every financial year Balance C/D amount will be taken in trial balance to know the accuracy of ledger positing. Trial balance we will study later.👩‍💼

Now let me give you one (DIY) for your practice let’s see how you will do! Well I have shared my knowledge with you let’s see did you gained that knowledge?🤗

DIY (DO IT YOURSELF)

1. Pass journal entries and post them in ledger accounts in the books of Stacy.

Next time😀 I will show you how to post transactions into ledger account part 2 (i.e., creditors account and debtors account).

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