Unit 2: Ledgers: Learning Outcomes
Unit 2: Ledgers: Learning Outcomes
UNIT 2 : LEDGERS
LEARNING OUTCOMES
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.
2.3 POSTING
The process of transferring the debit and credit items from journal to classified accounts in the ledger is known
as posting.
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
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.
SOLUTION
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
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.
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.
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
8,000 8,000
Feb.1 To Balance b/d 8,000