Unit 2: Ledgers: Learning Outcomes

2.
34 PRINCIPLES AND PRACTICE OF ACCOUNTING
UNIT 2 : LEDGERS
LEARNING OUTCOMES
After studying this unit, you would be able to:

 Understand the concept of Ledgers.
 Learn the technique of ledger posting and how to balance an account.
 Learn the technique of opening accounts each year taking closing balances of the
previous year. Note also the use of ‘balance c/d’ and ‘balance b/d’
UNIT OVERVIEW
2.1 INTRODUCTION
After recording the transactions in the journal, recorded entries are classified and grouped into by preparation of
accounts. The book which contains all set of accounts (viz. personal, real and nominal accounts), is known as
Ledger. It is known as principal books of account in which account-wise balance of each account is determined.
2.2 SPECIMEN OF LEDGER ACCOUNTS

A ledger account has two sides-debit (left part of the account) and credit (right part of the account). Each of the
debit and credit side has four columns. (i) Date (ii) Particulars (iii) Journal folio i.e. page from where the entries
are taken for posting and (iv) Amount.
© The Institute of Chartered Accountants of India

35 ACCOUNTING PROCESS 2.35
Dr. Account Cr.

Date Particulars J.F. Amount (`) Date Particulars J.F. Amount(`)
2.3 POSTING
The process of transferring the debit and credit items from journal to classified accounts in the ledger is known
as posting.
2.3.1 RULES REGARDING POSTING OF ENTRIES IN THE LEDGER

1. Separate account is opened in ledger book for each account and entries from ledger posted to respective
account accordingly.
2. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the ledg er. The word ‘To’ is used
in the particular column with the accounts written on the debit side while ‘By’ is used with the accounts
written in the particular column of the credit side. These ‘To’ and ‘By’ do not have any meanings but are
used to the account debited and credited.
3. The concerned account debited in the journal should also be debited in the ledger but reference should
be of the respective credit account.
2.4 BALANCING AN ACCOUNT

At the end of the each month or year or any particular day it may be necessary to ascertain the balance in an
account. This is not a too difficult thing to do; suppose a person has bought goods worth `1,000 and has paid
only ` 850; he owes `150 and that is balance in his account. To ascertain the balance in any a ccount, what is
done is to total the sides and ascertain the difference; the difference is the balance. If the credit side is bigger
than the debit side, it is a credit balance. In the other case it is a debit balance. The credit balance is written on
the debit side as, “To Balance c/d”; c/d means “carried down”. By doing this, two sides will be equal. The totals
are written on the two sides opposite one another.
Then the credit balance is written on the credit side as “By balance b/d (i.e., brought down)”. This is the opening
balance for the new period. The debit balance similarly is written on the credit side as “By Balance c/d”, the totals
then are written on the two sides as shown above as then the debit balance written on the debit side as, “To
Balance b/d”, as the opening balance of the new period.
It should be noted that nominal accounts are not balanced; the balance in the end are transferred to the profit
and loss account. Only personal and real accounts ultimately show balances. In the illustrations given, you will
have notice that the capital account, the purchases account, sales account, the discount account, the rent account

2.36 PRINCIPLES AND PRACTICE OF ACCOUNTING
and the salary account have not been balanced. The capital account will have to be adjusted for profit or loss
and that is why it has not been balanced yet.
ILLUSTRATION 1
Prepare the Stationery Account of a firm for the year ended 31.12.2020 duly balanced off, from the following
details:
2020 `
Jan. 1 Inventory of stationery 480
April 5 Purchase of stationery by cheque 800
Nov. 15 Purchase of stationery on credit from Five Star Stationery Mart 1,280
SOLUTION
Dr. Stationery Account Cr.

Date Particulars ` Date Particulars `
1.1.2020 To Balance b/d 480 31.12.2020 By Balance c/d 2,560
5.4.2020 To Bank A/c 800
15.11.2020 To Five Star Stationery
Mart A/c 1,280
2,560 2,560
1.1.2021 To Balance b/d 2,560
ILLUSTRATION 2
Prepare the ledger accounts on the basis of following transactions in the books of a trader.
Debit Balances on January 1, 2020:
Cash in Hand ` 8,000, Cash at Bank ` 25,000, inventory of Goods ` 20,000, Building ` 10,000. Trade
receivables: Vijay ` 2,000 and Madhu ` 2,000.
Credit Balances on January 1, 2020:
Trade payables: Anand ` 5,000, Capital ` 55,000
Following were further transactions in the month of January, 2020:
Jan. 1 Purchased goods worth ` 5,000 (payable at later date) for cash less 20% trade discount and 5% cash
discount.
Jan. 4 Received ` 1,980 from Vijay and allowed him ` 20 as discount.
Jan. 8 Purchased plant from Mukesh for `5,000 and paid `100 as cartage for bringing the plant to the factory
and another `200 as installation charges.

Jan. 12 Sold goods to Rahim on credit `600.

Jan. 15 Rahim became insolvent and could pay only 50 paise in a rupee.
Jan. 18 Sold goods to Ram for cash `1,000.
SOLUTION
Dr. Cash Account Cr.

Date Particulars L.F. ` Date Particulars L.F. `
2020 2020
Jan. 1 To Balance b/d 8,000 Jan. 1 By Purchases A/c 3,800
Jan. 4 To Vijay 1,980 Jan. 8 By Plant A/c 300
Jan. 15 To Rahim 300 Jan. 31 By Balance c/d 7,180
Jan. 18 To Sales A/c 1,000
11,280 11,280
Feb. 1 To Balance b/d 7,180
Dr. Bank Account Cr.

Jan. 1 To Balance b/d 25,000 Jan. 31 By Balance c/d 25,000
25,000 25,000
Dr. Inventory Account Cr.

20,000 20,000
Dr. Building Account Cr.
10,000 10,000
Dr. Vijay Cr.

Jan. 1 To Balance b/d 2,000 Jan. 4 By Cash A/c 1,980
By Discount A/c 20
2,000 2,000

Dr. Madhu Cr.

2,000 2,000
Dr. Anand Cr.
Jan. 31 To Balance c/d 5,000 Jan. 1 By Balance b/d 5,000
5,000 5,000
Feb. 1 By Balance b/d 5,000
Dr. Capital Account Cr.
Jan. 31 To Balance c/d 55,000 Jan. 1 By Balance b/d 55,000
55,000 55,000
Dr. Purchases Account Cr.
Jan. 1 To Cash 3,800
Jan. 1 To Cash Discount 200 Jan. 31 By Balance c/d 4,000
4,000 4,000
Dr. Discount Account Cr.
Jan. 4 To Vijay 20 Jan. 1 By Purchases A/c 200
Jan.31 To Balance c/d 180
200 200
Feb. 1 By Balance b/d 180
Dr. Plant Account Cr.
Jan. 8 To Mukesh 5,000 Jan. 31 By Balance c/d 5,300
Jan. 8 To Cash A/c 300
5,300 5,300

Dr. Mukesh Cr.

Jan. 31 To Balance c/d 5,000 Jan. 8 By Plant A/c 5,000
5,000 5,000
Dr. Sales Account Cr.
Jan. 31 To Balance c/d 1,600 Jan. 12 By Rahim 600
Jan. 18 By Cash A/c 1,000
1,600 1,600
Dr. Rahim Cr.
Jan. 12 To Sales A/c 600 Jan. 15 By Cash A/c 300
Jan. 15 By Bad Debts A/c 300
600 600
Dr. Bad Debts Account Cr.
Jan. 15 To Rahim 300 Jan. 31 By Balance c/d 300
300 300
Feb. 1 To Balance b/d 300
ILLUSTRATION 3
The following data is given by Mr. S, the owner, with a request to compile only the two personal accounts of
Mr. H and Mr. R, in his ledger, for the month of April, 2020.
1 Mr. S owes Mr. R ` 15,000; Mr. H owes Mr. S ` 20,000.
4 Mr. R sold goods worth ` 60,000 @ 10% trade discount to Mr. S.
5 Mr. S sold to Mr. H goods prices at ` 30,000.
17 Record a purchase of ` 25,000 net from R, which were sold to H at a profit of `15,000.
18 Mr. S rejected 10% of Mr. R’s goods of 4th April.
19 Mr. S issued a cash memo for `10,000 to Mr. H who came personally for this consignment of goods,
urgently needed by him.
22 Mr. H cleared half his total dues to Mr. S, enjoying a ½% cash discount (of the payment received,
` 20,000 was by cheque).

26 R’s total dues (less `10,000 held back) were cleared by cheque, enjoying a cash discount of `1,000 on
the payment made.
29 Close H’s Account to record the fact that all but ` 5,000 was cleared by him, by a cheque, because he
was declared bankrupt.
30 Balance R’s Account.
SOLUTION
In the books of Mr. S

Dr. Mr. H Account Cr.
1.4.2020 To Balance b/d 20,000 22.4.2020 By Bank A/c 20,000
5.4.2020 To Sales A/c 30,000 22.4.2020 By Cash A/c (Note 2) 24,775
17.4.2020 To Sales A/c 40,000 29.4.2020 By Discount Allowed A/c 225
29.4.2020 By Bank A/c 40,000
29.4.2020 By Bad Debts A/c 5,000
90,000 90,000
Dr. Mr. R Account Cr.

18.4.2020 To Purchase 5,400 1.4.2020 By Balance b/d 15,000
To Returns A/c 4.4.2020 By Purchases A/c 54,000
26.4.2020 To Bank A/c 77,600 17.4.2020 By Purchases A/c 25,000
26.4.2020 To Discount
Received A/c 1,000
30.4.2020 To Balance c/d 10,000
94,000 94,000
1.5.2020 By Balance b/d 10,000
Working Notes:
(1) Sale of `10,000 on 19th April is a cash sales, therefore, it will not be recorded in the Personal Account
of Mr. H; and (2) On 22nd April, Mr. H owes Mr. S ` 90,000, amount paid by Mr. H ½ of ` 90,000 less
½% discount i.e., ` 45,000– ` 225 = ` 44,775. Out of this amount, ` 20,000 paid by cheque and the
balance of ` 24,775 in cash.
Note: The balance of all nominal accounts are transferred to Profit and Loss account at the time of preparation
of financial statements as the nominal Accounts are in the nature of revenue/incomes/gains or expenses/losses.
Thus, the net result of all nominal accounts are reflected in profit and loss Account for an accounting period which
is transferred to Capital Account. The balance of all the accounts relating to assets and liabilities (personal or

impersonal) are reflected in the Balance Sheet at the end of accounting period.
SUMMARY
 Process of transferring journal entries in the accounts opened in Ledger is called posting.
 Ledger is known as principal books of accounts and it provides full information regarding all the
transactions pertaining to any individual account.
 The difference between the totals of debits and credit sides is found out as the balance. Some of these
balances are transferred to the profit and loss account and some are carried forward to the next year
i.e., shown in the balance sheet, depending upon the nature of the account.
TEST YOUR KNOWLEDGE

True and False
1. A ledger is also known as the principal book of accounts.
2. Cash account has a debit balance.
3. Posting is the process of transferring the accounts from ledger to journal.
4. At the end of the accounting year, all the nominal accounts of the ledger book are balanced.
5. Ledger records the transactions in a chronological order.
6. If the total debit side is greater than the total of credit side, we get a credit balance.
7. Ledger accounts of assets will always be debited when they are increased.
Multiple Choice Questions

1. The process of transferring the debit and credit items from a Journal to their respective accounts in the
ledger is termed as
(a) Posting
(b) Purchase
(c) Balancing of an account
2. The technique of finding the net balance of an account after considering the totals of both debits and
credits appearing in the account is known as
(a) Posting
(b) Purchase
(c) Balancing of an account
3. Journal and ledger records transactions in
(a) A chronological order and analytical order respectively.

(b) An analytical order and chronological order respectively.

(c) A chronological order only
4. Ledger book is popularly known as

(a) Secondary book of accounts
(b) Principal book of accounts
(c) Subsidiary book of accounts
5. At the end of the accounting year all the nominal accounts of the ledger book are
(a) Balanced but not transferred to profit and loss account
(b) Not balanced and also the balance is not transferred to the profit and loss account
(c) Not balanced and their balance is transferred to the profit and loss account.
Theory Questions
1 What do you mean by principal books of accounts?
2 What are the rules of posting of journal entries into the Ledger?
Practical Questions
1. Journalize the following transactions, post them in the Ledger and balance the accounts on
31st December.
1. X started business with a capital of ` 20,000
2. He purchased goods from Y on credit ` 4,000
3. He paid cash to Y ` 2,000
4. He sold goods to Z ` 4,000
5. He received cash from Z ` 6,000
6. He further purchased goods from Y ` 4,000
7. He paid cash to Y ` 2,000
8. He further sold goods to Z ` 4,000
9 He received cash form Z ` 2,000
ANSWERS/HINTS
True and False
1. True: Since it classifies all the amounts related to a particular account and then it is used as the base
for preparing the Trial balance, a ledger is also known as principal books of accounts.
2. True: Being an asset under the modern equation approach, cash account has a debit balance.

3. False: Posting is the process of transferring the balances from journal to ledger.
4. False: At the end of the accounting year, all the nominal accounts of the ledger book are totaled and
transferred to P&L A/c.
5. False: Ledger records the transactions in analytical order. But journal records the transactions in a
chronological order.
6. False: If the total of debit side is greater than the total of credit side, we get a debit balance as the
opening balance.
7. True: The increase to an asset shall be debited since the original balance is also debit.
Multiple Choice Questions

1. (a) 2. (c) 3. (a) 4. (b) 5. (c)
Theoretical Questions
1. Ledger is known as principal books of accounts and it provides full information regarding all the
transactions pertaining to any individual account. Ledger contains all set of accounts (viz. personal, real
and nominal accounts).
2. Rules regarding posting of entries in the ledger:
a. Separate account is opened in ledger book for each account and entries from ledger posted to
respective account accordingly.
b. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the ledger. The word ‘To’
is used in the particular column with the accounts written on the debit side while ‘By’ i s used
with the accounts written in the particular column of the credit side. These ‘To’ and ‘By’ do not
have any meanings but are used to the account debited and credited.
c. The concerned account debited in the journal should also be debited in the led ger but reference
should be of the respective credit account.
Practical Questions
Answer 1
Journal
Particulars L.F. Debit ` Credit `
Cash Account Dr. 20,000
To Capital Account 20,000
(Being commencement of business)
Purchase Account Dr. 4,000
To Y 4,000
(Being purchase of goods on credit)
Y Dr. 2,000
To Cash 2,000

(Being payment of cash to Y)

Z Dr. 4,000
To Sales 4,000
(Being goods sold to Z)
To Z 6,000
(Being cash received form Z)
Purchase Account Dr. 4,000
To Y 4,000
(Being payment of goods from Y)
Y Dr. 2,000
To Cash Account 2,000
(Being payment of cash to Y)
Z Dr. 4,000
To Sales Account 4,000
(Being goods sold to Z)
To Z 2,000
(Being cash received from Z)
TOTAL 48,000 48,000
Dr. Cash Account Cr.

To Capital A/c 20,000 By Y 2,000
To Z 6,000 By Y 2,000
To Z 2,000 By Balance c/d 24,000
28,000 28,000
Dr. Capital Account Cr.

Jan. 31 To Balance c/d 20,000 By Cash A/c 20,000
20,000 20,000
Dr. Purchase Account Cr.

To Y 4,000 Jan 31. By Balance c/d 8,000
To Y 4,000

8,000 8,000
Feb.1 To Balance b/d 8,000
Dr. Y’s Account Cr.

To Cash 2,000 By Purchases 4,000
To Cash 2,000 By Purchases 4,000
Jan. 31 To Balance c/d 4,000
8,000 8,000
By Balance b/d 4,000
Dr. Z’s Account Cr.

To Sales 4,000 By Cash A/c 6,000
To Sales 4,000 By Cash A/c 2,000
8,000 8,000
Dr. Sales Account Cr.

Jan. 31 To Balance c/d 8,000 By Z 4,000
By Z 4,000
8,000 8,000

Unit 2: Ledgers: Learning Outcomes

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Unit 2: Ledgers: Learning Outcomes

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2.

34 PRINCIPLES AND PRACTICE OF ACCOUNTING

After studying this unit, you would be able to:

2.2 SPECIMEN OF LEDGER ACCOUNTS

© The Institute of Chartered Accountants of India

Dr. Account Cr.

2.3.1 RULES REGARDING POSTING OF ENTRIES IN THE LEDGER

2.4 BALANCING AN ACCOUNT

© The Institute of Chartered Accountants of India

Dr. Stationery Account Cr.

© The Institute of Chartered Accountants of India

Jan. 12 Sold goods to Rahim on credit `600.

Dr. Cash Account Cr.

Dr. Bank Account Cr.

Dr. Inventory Account Cr.

Dr. Vijay Cr.

© The Institute of Chartered Accountants of India

Dr. Madhu Cr.

© The Institute of Chartered Accountants of India

Dr. Mukesh Cr.

© The Institute of Chartered Accountants of India

In the books of Mr. S

Date Particulars ` Date Particulars `

© The Institute of Chartered Accountants of India

TEST YOUR KNOWLEDGE

Multiple Choice Questions

© The Institute of Chartered Accountants of India

(b) An analytical order and chronological order respectively.

4. Ledger book is popularly known as

© The Institute of Chartered Accountants of India

Multiple Choice Questions

© The Institute of Chartered Accountants of India

(Being payment of cash to Y)

Dr. Cash Account Cr.

Date Particulars ` Date Particulars `

Dr. Capital Account Cr.

Date Particulars ` Date Particulars `

Dr. Purchase Account Cr.

© The Institute of Chartered Accountants of India

Dr. Y’s Account Cr.

Dr. Z’s Account Cr.

Dr. Sales Account Cr.

© The Institute of Chartered Accountants of India

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