Ledger Posting

Last updated on 06/07/2020 3 By indiafreenotes

Ledger posting is very important part of accounting system. As we know that to reach to any financial result, we have to go through so many process. For example, first of all, we must know to maintain proper account records. To maintain proper account records, one must know proper accounting system. And proper accounting system includes following important steps to be followed:

  1. To prepare the vouchers.
  2. To enter the vouchers in to different type of day books.
  3. Posting the entries from day books to ledger.
  4. Totalling and balancing of ledgers.
  5. To prepare the trial balance
  6. To prepare Trading Account, Profit & Loss Account and Balance Sheet.

In brief, Ledger is a summary of all accounts heads maintained by the business firm.

How to post the entries from day book to ledger: Following  are the procedures of posting of entries from day books to ledger:-

  1. First of all, we have to open the accounts heads in ledger books. Ledger books contains similar type of pages having serial numbers. It also contains an index in beginning of ledger books. The name of account head is written in index of ledger and the same account head is written on any page of ledger. Then, the page number of that particular account head is written against that account head in index.

For Example: Suppose, we want to open a Conveyance Expenses Account head in ledger. In this case, first, we shall write Conveyance Expenses Account in Index of ledger under ‘C’ alphabet and then we shall choose any page in ledger and on that page also, we shall write Conveyance Expenses Account. The page number, on which this Conveyance Expenses Account is written,  should be written in index of ledger against Conveyance Expenses Account.  So, when ever, we want to see the details of conveyance expenses account in ledger, first we shall open the index under alphabet ‘C’ then we will find out the page number of Conveyance Expenses Account and reach to particular page very easily. Same way, any number of accounts heads can be opened.

  1. As we know that the ledger contains the columns like date, particulars, ledger folio, amount Dr., amount Cr. and balance Dr. or Cr. There is simple procedure of posting the entries from day book to ledger. All entries relating to the accounts heads, which are debited, should be posted to debit side of ledger account. Similarly, the credit entries of any account head should be posted in to credit side of that particular ledger account. We can understand this system easily with the following example:-

Example: Suppose, we prepared one Cash Payment Voucher like this:-

Date: 15.07.2019

Debit: Conveyance Expenses Account    Rs.800/=

Credit: Cash Account                                Rs.800/=

(Being cash paid to Mr. Vinod for conveyance for the m/o June,2019)

First of all, the above voucher will be written in Cash Day Book in payment side.

From the above entry, we find that the Conveyance Expenses Account is being debited. Therefore, In ledger, under Conveyance Expenses Account head, we shall write this amount in debit side. In other words, the amount of above entries will be shown in debit side of Conveyance expenses Account.

Let us illustrate how accounting ledgers and the posting process work using the transactions we had in the previous lesson. Click here to see the journal entries we will be using.

Take transaction #1 first.

Date
2017
Particulars Debit Credit
Dec 1 Cash 10,000.00
Mr. Gray, Capital 10,000.00

Now, go to the ledger and find the accounts. Post the amounts debited and credited to the appropriate side. Debits go to the left and credits to the right. After posting the amounts, the cash and capital account would look like:

Cash Mr. Gray, Capital
10,000.00 10,000.00

Explanation: First, we posted the entry to Cash. Cash in the journal entry was debited so we placed the amount on the debit side (left side) of the account in the ledger. For Mr. Gray, Capital, it was credited so the amount is placed on the credit side (right side) of the account. And that’s it. Posting is simply transferring the amounts from the journal to the respective accounts in the ledger.

Note: The ledger accounts (or T-accounts) can also have fields for account number, description or particulars, and posting reference.

Let’s try to post the second transaction.

5 Taxes and Licenses 370.00
Cash 370.00

After posting the above entry, the affected accounts in the ledger would look like these:

Cash Taxes and Licenses
10,000.00 370.00 370.00

There was a debit to Taxes and Licenses so we posted that in the left side (debit side) of the account. Cash was credited so we posted that on the right side of the account.

Notice that after posting transaction #2, we now can get a more updated balance for each account. Cash now has a balance of $9,630 ($10,000 debit and 370 credit). Nice, right? Post all the other entries and we will be able to get the balances of all the accounts.

General Ledger Example

A general ledger contains accounts that are broad in nature such as Cash, Accounts Receivable, Supplies, and so on. There is another type of ledge which we call subsidiary ledger. It consists of accounts within accounts (i.e., specific accounts that make up a broad account).

For example, Accounts Receivable may be made up of subsidiary accounts such as Accounts Receivable – Customer A, Accounts Receivable – Customer B, Accounts Receivable – Customer C, etc.

Okay – let’s go back to the general ledger. In the above discussion, we posted transactions #1 and #2 into the ledger. If we post all 15 transactions (click here to see the entries) and get the balances of each account at the end of the month, the ledger would look like this:

ASSETS LIABILITES CAPITAL
Cash Accounts Payable Mr. Gray, Capital
10,000.00 370.00 500.00 8,000.00 10,000.00
1,900.00 3,000.00 1,500.00 3,200.00
3,200.00 8,000.00 9,000.00 13,200.00
4,250.00 500.00
12,000.00 7,000.00 Loans Payable Mr. Gray, Drawing
1,500.00 12,000.00 7,000.00
3,500.00
7,480.00
Service Revenue
Accounts Receivable 1,900.00
4,250.00 4,250.00 4,250.00
3,400.00 3,400.00
3,400.00 9,550.00
Service Supplies Rent Expense
1,500.00 1,500.00
Furniture and Fixtures Salaries Expense
3,000.00 3,500.00
Service Equipment Taxes and Licenses
16,000.00 370.00

After all accounts are posted, we can now derive the balances of each account. So how much Cash do we have at the end of the month? As shown in the ledger above, the company has $7,480 at the end of December.

How about accounts receivable? Accounts payable? You can find them all in the ledger.

Note: The above is a simplified and theoretical example of a ledger. In reality, companies have a lot more than 15 transactions! They may have hundreds or even thousands of transactions in one day. Imagine how lengthy the ledger would be. Worse, imagine the work needed in posting that many transactions manually.

Because of technological advancements however, most accounting systems today perform automated posting process. Nonetheless, the above example shows how a ledger works.