What is Ledger in Accounting? Definition, Format

What is Ledger?

Ledger is the principal book of accounts that contains all accounts covered in journal entries and in subsidiary books. All transactions are recorded in a tabular form in the T format, which provides accounting information at a glance.

All accounts that are formed in pri mary books of accounts find their final destination in ledgers.

Ledger Definition

Some of the widely accepted definitions of ledger are:

A ledger is a book of accounts which contains in a suitably classified form the final and permanent account of traders’ transactions. – V.J. Vickery

A ledger is the most important book of accounts and is the final destination of entries made in the subsidiary. – W. Pickles

In case you get to see accounting books of businesses that still maintain manual books of accounts, you will see that the ledger is a big bound register and has two or more pages dedicated to one account as per the number of transactions expected in that account. The ledger comprises all accounts and total business transactions.

The trial balance is made from the ledger closing balances. The ledger account has two sides and has a T format. It has a debit side and a credit side. Transactions are posted on each side depending on the nature of the transaction and the account it affects

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Format of Ledger

A ledger is different from a journal entry. You have already studied that a journal entry has a specific format of recording. Similarly, a ledger also has a specific format of recording transactions.

The format of the ledger is designed in such a way that it achieves the following business objectives:

• To record all transactions in a classified way that remains as a permanent record for future references
  
  
• To give detailed information about any account at a glance easily for that particular period
  
  
• To give a net effect of the account
  
  
• To prepare the trial balance easily on the basis of ledger accounts closing balances of each account and ensure that accounting entries are correct
  
  
• To understand the cost and time of any particular transaction
  
  
• To provide the details of yearly transactions to third parties such as suppliers or customers

Now, the question arises whether it is duplication of work, as all transactions are already recorded in journal entries. Major differences between journal entries and ledger are shown in Table 1:

Point of Difference	Journal Entries	Ledger
Accounting cycle	It is the first step.	It is the second step.
Meaning	It is a primary book where transactions are recorded.	It is a primary book where transactions are classified.
Use	Ledger is prepared from journal.	Trial balance is prepared from ledger.
Information	It provides detailed information about transactions.	It provides summarised information about transactions.
Net effect	It does not give the net effect of any account.	It gives the net effect of all accounts.

Let us see how a ledger looks like. The format of a ledger account is prepared in ‘T’ Shape. It has two sides. The lefthand side is the debit side and the righthand side is the credit side. A sample ledger account is shown in Table 2:

Machinery Account

Date	Particulars	J. F.	Amount	Date	Particulars	J. F.	Amount
	Balance brought forward
					Balance carried down
	Total				Total

In a ledger account, there are three major columns on debit and credit side each namely date column, particulars column and amount column. Let us study each one of them as follows:

• Date column: There is a date column on each side of the table, i.e., debit side and credit side. When there is a debit transaction, the date of the transaction should be written on the date column of the debit side of the table along with the particulars and amount of the transaction in their respective columns.
  
  Similarly, if there is a credit effect transaction, the date of the transaction should be written on the date column of the credit side of the table along with the particulars and amount of the transaction in their respective columns.
  
  
  
• Particulars column: Again, there is a particulars column on the debit side and credit side. When there is a debit effect transaction, the particulars of the other account should be written on the debit side particulars column, similarly for the credit side.
  
  For example, in the above given format of machinery account, if there is a new purchase of machinery of ₹50,000, the journal entry for this transaction is:

1.7.2019	Machinery A/c	Dr. ₹ 50,000
1.7.2019	To Bank A/c (Being new machinery purchased)		Cr. ₹ 50,000

The ledger account for this transaction is constructed as shown in Table 3:

Debit					Credit
Date	Particulars	Amount	Date	Particulars	Amount
1.4.2019	To Balance b/f	50,000
1.7.2019	To Bank	50,000
			31.3.2020	By Balance c/d	1,00,000
	Total	1,00,000			1,00,000

Here, the other account affected is the Bank account. Hence, the Machinery account will record in the Particulars column, through bank account with the words ‘To’ if it is an entry on the debit side.

31.3.2020	Depreciation A/c	Dr. ₹ 7,500
31.3.2020	To Machinery A/c (Being depreciation at 10% on straight line method)		₹ 7,00

This is shown in Table 7.4:

Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
1.4.2019	To Balance b/f		50,000
1.7.2019	To Bank		50,000
				31.3.2020	By Depreciation		7500
				31.3.2020	By Balance c/d		92500
	Total		1,00,000				1,00,000

In the above example, there is a credit entry and so the word ‘By’ is written in the particulars column and the other account affected in the journal is depreciation which has a credit effect. Therefore, depreciation account is written in the credit side.

From the above example, you can see how the debit and credit side transactions are posted in the ledger account.

• Amount column: Again, you will find both debit and credit sides have amount columns and similarly to the examples shown above the debit entries amount would be entered in the debit side amount column against the date and particulars and credit entries amount would be entered in the credit side amount column against its relevant date and particulars
  
  
  
• Journal Folio (J.F.) column: The Journal Folio column gives the reference of the page number or entry number of the journal entry, in case the user wants to know more detailed information about the transaction so they can refer the journal entry where the transaction was originally recorded with the help of the Journal Folio number.