5 Simple Steps to Write and Prepare Ledger Account

Business organizations needs to write and prepare ledger account wherein all the transactions of are recorded permanently under different heads of accounts.

As per accounting principle the transactions just after their occurrence are recorded in the primary book of account – journal in chronological order of dates with explanations. But it is not possible to determine the complete results of transactions from journal.

That is, it is not possible to know the information like how much profit under what heads has been earned, how much expenses under what head has been incurred, how much assets and liabilities are there in a particular business concern from journals.

Write and Prepare Ledger Account

In order to know all these information the transactions of the same nature are to be recorded under different heads or in separate accounts.

That is,

All the transactions relating to individual, organization assets, income and expenditure are recorded under the same head of accounts-individual, organization, assets, income and expenditure.

Write and Prepare Ledger Account

In this way if various transactions are recorded in different respective heads of accounts, it becomes possible to determine the complete result of any account at the end of accounting period.

So, it can be said that, the book wherein various entries of journal are posted in brief permanently according to debit and credit under separate heads of accounts is called ledger.

How to Write and Prepare Ledger Account

1. Drawing the Form

Every leaf of account is divided into two equal parts by a bold vertical line or two sharp vertical lines. The left side of it is debit side and the right side is credit side.

Thereafter,

both the sides are again divided into four columns i.e., this is divided into eight columns having four in debit side and four in credit side. In first column of both the sides’ dates, the second particulars, and the third journal folio and in the fourth amount are written.

2. Posting

The act of transferring the transactions from the journal to the respective accounts of ledger is called posting. The two accounts involved in each transaction are maintained in the ledger.

The debit account of journal is posted in the debit side of that account and the credit account of journal is posted in the credit side of that account.

In this regard it is to be carefully noted that at the time of posting in the debit side of the ledger account, credit account of journal is to be written in particular column and in the credit side of the ledger account debit account of that journal is to be written in particular column.

3. Folioing

The page of journal from which the journal entries are transferred to the particular ledger account that page number is written in the folio column of ledger account and the page of the ledger wherein the account is posted the number of that page is written in the journal in the ledger folio column of journal.

In this way writing of page number of journal in the ledger and that of ledger in the journal is called folioing.

4. Casting

The amount of debit and credit of each ledger account is totaled separately in both sides. In this way totaling of debit and credit is called casting.

5. Balancing

After totaling of debit and credit of ledger accounts, it shows that total of both the sides is made equal putting difference of both sides the account is considered balanced.

In this case nothing is left to be done.But if the total of both the sides is unequal, in that case difference is to be determined.

There after the amount of difference is added in deficit side to equalize both the sides. This sort of difference between two sides of accounts is called balance.

The act of equalizing the total of both the sides by adding debit balance in the credit side and the credit balance in the debit side is called balancing.

Debit balance: If the total amount of debit side is greater than the total amount of credit side of the ledger than the difference between both the sides is called debit balance.

For example,

the total of debit of a particular ledger account is $ 10,000 and the total of credit of that ledger account is $8,000, -then the difference between these two sides amounting $2,000 is a debit balance.

As per rule of debit and credit under double entry system all expenditures and assets accounts show debit balance. Therefore debit balances of ledger accounts mean expenditure and assets.

Credit balance: On the other hand, if the total of credit money column of a particular ledger account is greater than that of debit money column, the balance is called credit balance.

For example,

the total of credit money column of a particular account is $5,000 and that of debit money column is $4,000, the difference between these two amounts $ 1,000 is a credit balance.

All income and liability accounts always show credit balance i.e. credit balances of ledger account mean incomes and liabilities.