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LEDGERLEDGERLedgerLedger isis bookbook ofof FinalFinal entryentry..
ItIt isis aa bookbook whichwhich containscontains variousvarious
accountsaccounts..
ItIt isis aa set/groupset/group ofof accountsaccounts..
ItIt containscontains allall thethe accountsaccounts ofofbusinessbusiness enterpriseenterprise whetherwhether Real,Real,
NominalNominal oror PersonalPersonal..
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OnceOnce thethe transactionstransactions areare recordedrecorded inin
thethe bookbook ofof ORIGINALORIGINAL ENTRYENTRY-- thetheJournalJournal-- theythey areare POSTED POSTED toto thethe debitdebit
oror creditcredit sideside ofof thethe respectiverespective accountsaccounts
affected,affected, inin thethe LEDGERLEDGER..
TheThe Process Process ofof recordingrecording thethe
transactionstransactions inin thethe ledgerledger isis termedtermed asas
POSTINGPOSTING..
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JOURNAL VS LEDGERJOURNAL VS LEDGER
PointsPoints JournalJournal LedgerLedger
NatureNature Book Book ofof PrimePrime
entryentry
BookBook ofof finalfinal
entryentry
StyleStyle ChronologicalChronological
orderorder
AnalyticalAnalytical
orderorder
ProcessProcess RecordingRecording isisknownknown asas
JournalizingJournalizing..
RecordingRecordingherehere isis knownknown
asas PostingPosting..
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JOURNAL VS LEDGERJOURNAL VS LEDGER
PointsPoints JournalJournal LedgerLedger
ObjectiveObjective FinalFinal accountsaccountscannotcannot bebe
preparedprepared fromfrom
thisthis alonealone..
FinalFinal accountsaccountsmaymay bebe
compiledcompiled withwith
thisthis..
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IfIf youyou areare facedfaced withwith QuestionsQuestions likelike::
HowHow muchmuch aa particularparticular customercustomer owesowes you?you? WhatWhat isis thethe amountamount payablepayable byby youyou toto anyany oneone ofof
youryour suppliers?suppliers?
WhatWhat isis thethe amountamount ofof goodsgoods purchasedpurchased byby youyouduringduring specifiedspecified period?period?
HowHow muchmuch salessales youyou havehave made?made?
WhatWhat hashas beenbeen youryour expenditureexpenditure on,on, say,say, labour?labour?
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HowHow muchmuch aa particularparticular customercustomer owesowes you?you?
TurnTurn toto youryour LEDGERLEDGER && findfind outout thethe balancebalance
inin youryour CUSTOMERsCUSTOMERs A/CA/C..
WhatWhat isis thethe amountamount payablepayable byby youyou toto anyany
oneone ofof youryour supplierssuppliers??
FindFind outout thethe Balance Balance ofof your your SUPPLIERsSUPPLIERs
A/CA/C..
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WhatWhat isis thethe amountamount ofof goodsgoods purchasedpurchased byby
youyou duringduring specifiedspecified periodperiod??
FindFind outout thethe balancebalance ofof PURCHASESPURCHASES A/CA/C..
HowHow muchmuch salessales youyou havehave made?made?
FindFind outout thethe balancebalance ofof youryour SALESSALES A/CA/C..
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UTILITY OF LEDGERUTILITY OF LEDGER
ItIt providesprovides completecomplete informationinformation aboutabout allall
accountsaccounts inin oneone bookbook..
ItIt facilitatesfacilitates thethe preparationpreparation ofof finalfinal accountsaccounts..
ItIt enablesenables toto ascertainascertain whatwhat areare thethe mainmain itemsitemsofof revenuesrevenues andand expensesexpenses..
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FORMAT OF LEDGERFORMAT OF LEDGER
DateDate ParticPartic--
ularsulars
AmtAmt
Rs.Rs.
DateDate ParticulParticul
arsars
AmtAmt
Rs.Rs.
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Use of the words To and ByUse of the words To and By
ItIt isis customarycustomary toto useuse wordswords ToTo andand ByBy
whilewhile makingmaking postingposting inin thethe LedgerLedger..
TheThe wordword ToTo isis usedused withwith thethe accountsaccountswhichwhich appearappear onon thethe debitdebit sideside ofof aa LedgerLedger
accountaccount..
TheThe wordword ByBy isis usedused withwith thethe accountsaccounts
whichwhich appearappear onon thethe creditcredit sideside ofof aa ledgerledger
accountaccount..
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Balancing of AccountsBalancing of Accounts
TheThe techniquetechnique ofof findingfinding outout thethe netnet balancebalance
ofof anan account,account, afterafter consideringconsidering thethe totalstotals ofof
bothboth debitsdebits andand creditscredits appearingappearing inin thethe
accountaccount isis knownknown asas BALANCINGBALANCING THETHE
ACCOUNTACCOUNT..
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CONTRA ENTRYCONTRA ENTRY AnAn accountingaccounting transactiontransaction involvesinvolves twotwo accountsaccounts
andand therethere maymay bebe aa transactiontransaction wherewhere bothboth CashCashAccountAccount andand BankBank AccountAccount areare involvedinvolved..
InIn thethe ledger,ledger, therethere areare nono separateseparate CashCash AccountAccountandand BankBank Account,Account, therefore,therefore, inin suchsuch cases,cases, thethetransactiontransaction willwill bebe recordedrecorded onon bothboth sidessides ofof thethecashcash BookBook..
SuchSuch anan accountingaccounting entryentry whichwhich isis recordedrecorded ononbothboth thethe debitdebit andand creditcredit sideside ofof thethe cashcash bookbook isisknownknown asas aa CONTRACONTRA ENTRYENTRY..
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AN EXAMPLEAN EXAMPLE
IfIf cashcash isis withdrawnwithdrawn fromfrom thethe bank,bank, thethe twotwoaccountsaccounts involvedinvolved areare thethe CashCash AccountAccount andandthethe BankBank AccountAccount..
InIn thethe CashCash Book,Book, onon thethe debitdebit side,side, thetheamountamount willwill bebe putput inin cashcash columncolumn againstagainstthethe wordswords ToTo BankBank whilewhile onon thethe creditcredit
sideside ofof thethe CashCash Book,Book, thethe amountamount willwill bebewrittenwritten inin thethe bankbank columncolumn againstagainst thethewordswords ByBy CashCash..
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Special Points regarding ChequesSpecial Points regarding Cheques
ReceiptReceipt ofof ChequesCheques
AA ChequeCheque maymay bebe receivedreceived byby thethe businessbusinessandand sentsent toto thethe BankBank thethe samesame dayday forfor
collectioncollection..ForFor example,example, onon MarchMarch 1010,, aa chequecheque isisreceivedreceived fromfrom AA forfor RsRs.. 1010,,000000 andand isis sentsent totothethe BankBank forfor collectioncollection onon thethe samesame day,day, thetheentryentry willwill bebe::
BankBank A/cA/c..DrDr..1010,,000000
ToTo AA 1010,,000000
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InIn case,case, aa chequecheque receivedreceived fromfrom aa partyparty isis
sentsent toto thethe BankBank atat aa laterlater date,date, itit willwill bebe
betterbetter toto taketake thethe chequecheque asas receiptreceipt ofof cashcash
whenwhen itit isis receivedreceived andand depositdeposit ofof cashcash inin thethe
bankbank whenwhen thethe chequecheque isis sentsent forfor collectioncollection
toto thethe BankBank..
ForFor example,example, onon MarchMarch 1010,, aa chequecheque isis
receivedreceived fromfrom AA forfor RsRs.. 1010,,000000 andand isis sentsent toto
thethe bankbank forfor collectioncollection onon MarchMarch 1414..
CashCash a/ca/c..DrDr1010,,000000
ToTo AA 1010,,000000BankBank a/ca/cDrDr 1010,,000000
ToTo cashcash a/ca/c 1010,,000000
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EndorsementEndorsement ofof chequescheques receivedreceived
IfIf onon MarchMarch 1010,, aa chequecheque ofof RsRs.. 1010,,000000
waswas receivedreceived fromfrom AA andand itit waswas
endorsedendorsed onon MarchMarch 1414 inin favourfavour ofof B,B, aa
creditorcreditor ofof business,business, thethe entriesentries wilwil bebe
asas followsfollows::
CashCash a/ca/cDrDr.. 1010,,000000
ToTo AA 1010,,000000
BsBs A/cA/c..DrDr 1010,,000000
ToTo cashcash a/ca/c 1010,,000000
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DISHONOUR OF CHEQUESDISHONOUR OF CHEQUES
TheThe termterm dishonourdishonour ofof chequecheque meansmeansnonnon--paymentpayment ofof thethe chequecheque byby thethedraweedrawee bankbank onon itit beingbeing presentedpresented forfor
paymentpayment.. IfIf aa chequecheque receivedreceived fromfrom AA forfor RsRs..
1010,,000000 onon MarchMarch 1010,, isis dishonoureddishonoured bybythethe BankersBankers onon presentationpresentation onon MarchMarch
1414,, entriesentries willwill bebe::
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WhenWhen aa chequecheque isis receivedreceived fromfrom aa customercustomer
andand endorsedendorsed inin favourfavour ofof aa creditorcreditor isis
dishonoured,dishonoured, thethe entriesentries inin thethe cashcash bookbook willwillbebe::
OnOn receiptreceipt ofof chequecheque::
CashCash A/cA/cDrDr..
ToTo CustomerCustomer
OnOn endorsementendorsement ofof chequecheque::
CreditorCreditor....DrDr..
ToTo CashCash
OnOn dishonourdishonour ofof thethe chequecheque::
CustomerCustomerDrDr..
ToTo CreditorCreditor
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EXAMPLEEXAMPLE
DuringDuring thethe currentcurrent financialfinancial year,year, BadBad
debtsdebts writtenwritten offoff amountedamounted toto RsRs.. 22,,000000 andand
thethe totaltotal debtorsdebtors onon 3131stst ofof MarchMarch werewere RsRs..
22,,0000,,000000.. AA provisionprovision ofof 55%% onon bookbook debtsdebts isis
toto bebe mademade.. TheThe creditcredit balancebalance ofof RsRs.. 99,,000000
isis inin thethe ProvisionsProvisions forfor BadBad andand doubtfuldoubtful
debtsdebts..
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Provision of DepreciationProvision of Depreciation
Provision of Income TaxProvision of Income Tax
Provisions of DividendProvisions of Dividend
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RETAINED EARNINGSRETAINED EARNINGS
TheThe amountamount ofof profitprofit leftleft afterafter
deductiondeduction ofof incomeincome taxtax andand dividenddividend
isis retainedretained inin thethe businessbusiness forfor useuse inin thethesubsequentsubsequent accountingaccounting yearsyears.. TheThe
retainedretained earningearning isis carriedcarried forwardforward asas
partpart ofof ownersowners equityequity inin thethe BalanceBalancesheetsheet..
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RESERVESRESERVES
AA reservereserve isis anan appropriationappropriation ofof
profitsprofits forfor aa specificspecific purposepurpose oror
forfor retainingretaining aa partpart ofof thethe profitprofit
inin thethe businessbusiness forfor generalgeneral useuse..
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JOURNAL ENTRIESJOURNAL ENTRIES
PaidPaid IncomeIncome taxtax RsRs.. 11,,900900..
PaidPaid InsuranceInsurance premiumpremium byby chequecheque RsRs.. 350350..
IncurredIncurred advertisingadvertising RsRs.. 250250,, paidpaid cashcash RsRs.. 100100
andand stationerystationery givengiven forfor balancebalance.. (Owner(Owner inin thethebusinessbusiness ofof stationerystationery manufacturing)manufacturing)
InstalledInstalled aa smallsmall printingprinting machinemachine atat aa costcost ofof RsRs..
99,,500500,, paidpaid byby chequecheque..
AmountAmount duedue toto landlordlandlord asas RentRent forfor JanuaryJanuary RsRs..
150150..
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Procedure of balancing a ledgerProcedure of balancing a ledger
accountaccount
STEPSTEP 11:: MakeMake aa totaltotal ofof bothboth
thethe Debit Debit amountamount columncolumn andand
CreditCredit amountamount columncolumn
separatelyseparately andand ascertainascertain thethe
differencedifference betweenbetween thethe twotwototalstotals..
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StepStep 22:: IfIf thethe debitdebit sideside totaltotal
exceedexceed thethe creditcredit sideside totaltotal,, putput
suchsuch differencedifference (called(called debitdebit
balancebalance)) onon thethe creditcredit sideside inin
thethe creditcredit amountamount column,column,WriteWrite thethe datedate onon whichwhich
balancingbalancing isis donedone inin thethe DateDate
columncolumn andand thethe wordswords ByBy
Balance Balance c/dc/d inin ParticularsParticulars
columncolumn..
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STEPSTEP 33:: MakeMake aa totaltotal ofof bothboththethe Debit Debit amountamount columncolumn andand
thethe CreditCredit amountamount columncolumn andand
putput thethe totaltotal onon bothboth thethe sidessides
andand drawdraw aa doubledouble lineline
immediatelyimmediately beneathbeneath thethe totalstotals..
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StepStep 44:: EnterEnter thethe datedate ofof
beginningbeginning ofof nextnext periodperiod ininDateDate columncolumn andand bringbring downdown
thethe debitdebit balancebalance onon thethe debitdebit
sideside alongalong withwith thethe wordswords ToToBalanceBalance b/db/d inin ParticularsParticulars
columncolumn andand thethe creditcredit balancebalanceonon thethe creditcredit sideside alongalong withwith thethe
wordswords ByBy BalanceBalance b/db/d inin
ParticularsParticulars columncolumn..
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EXAMPLEEXAMPLE
OnOn 11..44..20082008,, Ram,Ram, aa customercustomer paidpaid cashcash RsRs..
980980.. JournaliseJournalise andand postpost itit intointo thethe ledgerledger..
CashCash A/cA/cDrDr.. 980980
ToTo RamRam 980980
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PROBLEMPROBLEM
TheThe followingfollowing datadata isis givengiven byby MrMr.. Sen,Sen, thethe
ownerowner of,of, withwith aa requestrequest toto compilecompile onlyonly twotwo
personalpersonal accountsaccounts ofof MrMr.. HariHari singhsingh andand
MrMr.. RamRam singh,singh, inin hishis ledgerledger forfor thethe monthmonth
ofof April,April, 20082008..
11 MrMr SenSen owesowes MrMr.. RamRam RsRs.. 1515,,000000.. MrMr..
HariHari owesowes MrMr.. SenSen RsRs.. 2020,,000000
44 MrMr.. RamRam soldsold goodsgoods worthworth RsRs.. 6060,,000000 @@
1010%% tradetrade discountdiscount toto MrMr.. SenSen..
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55 Mr. Sen sold to Mr Hari goods priced atMr. Sen sold to Mr Hari goods priced at
Rs. 30,000.Rs. 30,000.
1717 Record a purchase of Rs. 25,000 netRecord a purchase of Rs. 25,000 netfrom Ram, which were sold to Hari at afrom Ram, which were sold to Hari at a
profit of Rs. 15,000.profit of Rs. 15,000.
1818 Mr Sen rejected 10% of Mr RamsMr Sen rejected 10% of Mr Rams
goods of 4goods of 4thth April.April.
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44.. HeHe soldsold goodsgoods toto RamRam RsRs.. 22,,000000..55.. HeHe furtherfurther purchasedpurchased goodsgoods fromfrom SohanSohan
RsRs.. 22,,000000..
66.. HeHe paidpaid cashcash toto sohansohan RsRs.. 11,,000000..
77.. HeHe furtherfurther soldsold goodsgoods toto RamRam RsRs.. 22,,000000..
88.. PaidPaid SalariesSalaries RsRs.. 1010,,000000..
99.. PaidPaid RentRent RsRs.. 55,,000000..