Ledger

What Is a Ledger in Accounting?

A ledger is a book having accounts in which the classified and summarized information from the journals is posted as debits and credits. It is also called the second book of entry or called second book of accounts.
The ledger holds the information that is obligatory to make financial statements. It contains accounts for assets, liabilities, owner’s equity, incomes and expenditures. The complete list of accounts is recognized as the chart of accounts. The ledger signifies every active account on the list.

What Is a Ledger Account?

The accounting ledger contains the inventory of all general accounts in the accounting system’s chart of accounts.
Here are the primary general ledger accounts:

• Asset accounts include fixed assets, prepaid expenses, accounts receivable and cash
• Liability accounts which include notes payable, lines of credit, accounts payable and debt
• Stockholders’ equity accounts
• Revenue accounts
• Expense accounts
• Revenue and loss accounts such as interest, investment, disposal of an asset

These transactions are recorded throughout the year by debiting and crediting these accounts. The transactions are caused by normal business activities such as billing customers or through adjusting entries.

How Do You Write a Ledger?

Businesses that use the double-entry bookkeeping method of recording transactions make the accounting ledger. The entries have debit as well as credit transactions and are posted in two columns. The debit
Double-entry transactions are exposed in two columns, with debit placements on the left and credit entries on the right, and the total of all debit and credit entries must balance.
Ledgers breakdown the financial information from the journals into particular accounts such as Cash, Accounts Receivable and Sales. This allows you to see the particulars of all your transactions.

1. Make a ledger for each account
2. Make columns on the far left of the page for the date, journal number and description
3. Make columns on the left side for debit, credit, and balance. Debit refers to the money you receive while credit refers to the money that you paid or owe.
4. Enter the information from the journals into related accounts. Place related debits and credits side by side. Calculate the balance you’ve earned or owe
5. Record and make changes to the transactions as they occur.
6. Combine the different accounts to make a full ledger.

The next step in the accounting cycle is to create a trial balance. The information in the ledger accounts is summed up into account level totals in the trial balance report. The trial balance totals are matched and used to compile financial statements.

What’s the Difference between a Journal to a Ledger of accounts?

The journal and ledger both play an important role in the accounting process. The business transactions are primarily recorded in the journal and thereafter posted into the ledger under respective heads.
Meaning
The financial transactions are summarized and recorded as per the double entry system in a journal. It’s also known as the primary book of accounting or the book of original entry.
On the other hand the ledger is recognized as the major book of accounting. It proceedings the information from the journal in the “T” format. It is used to create the trial balance which is also the source of the financial statements such as the income statement and the balance sheet
Recording Transactions
The process of recording transactions in a journal is called journalizing while the process of transferring the entries from the journal to the ledger is known as posting.
The transactions in a journal are recorded in a chronological order making it easy to identify the transactions are associated with a given business day, week, or another billing period. The preparation of entries to a ledger account has more to do with grouping like transactions composed into particular accounts for purposes of assessing the data for internal financial and accounting resolutions.
Format
The format of a journal is simple. It includes the transaction date, particulars of the transaction, folio number, debit amount and credit amount. There is no scope for balancing in a journal.
Since it reports revenue and expenses in real time, it can help you stay on top of your spending. The general ledger also helps you compile a trial balance, spot unusual transactions and aids in the creation of financial statements.