LEDGER: The book in which transactions are recorded in classified permanent form is called the Ledger. Ledger is the permanent storehouse of all the financial transactions. A ledger, also known as the second book of entry, is a record-keeping system that records all of a company’s classified financial data. Transactions are recorded in the ledger in different accounts as debits and credits. The ledger is often referred to as a general ledger, and it’s intended to provide a record of every financial transaction that takes place during an operating company’s life.
Features of Ledger:
- It is the principal or primary book of accounts
- The transactions are classified under appropriate heads, called accounts.
- It is the basis of preparing the final accounts
- The information contained in the ledger cam be used to draw the conclusion regarding the status of any account.
- Importance of Ledger Accounts:
- Recording of Transactions Ledger account keeps a permanent record of all financial transactions in a classified manner.
- Providing Information Ledger account shows detailed financial information of a business regarding debtors and creditors, assets, and incomes and expenses.
- Preparation of Trial Balance Ledger account helps to prepare a trial balance in order to check the arithmetical accuracy of the recording of the financial transactions of the business.
- Preparation of Profit And Loss Account Ledger account helps to prepare profit and loss account so as to ascertain the profit or loss of the business.
- Preparation of Balance Sheet:Ledger account helps to prepare the balance sheet with a view to show the financial position of the business.
Steps for setting Ledger:
- Make a ledger for each account.
- Make columns on the far left of the page for the date, journal number, and description.
- Make columns on the left side for debit, credit, and balance.
- Enter the data from the journals into the associated accounts. Calculate your balance by finding the difference between the debit and credit.
- Record and make adjustments to the transactions as they occur, prioritize entering new journal entries.
- Combine the accounts to make a complete ledger. The first page is the listing of the chart of accounts that are included in the ledger and the associated numbers.