Preparation of Ledger Accounts in the Books of Vendor

The ledger is also known as the book of second entry or the principal book of accounts. The ledger contains the chart of accounts, which is the list of all names and account numbers in the ledger. The ledger is given special importance by auditors and must be “balanced,” where the total debits always equals the total credits. If the debits outweigh the credits, it is called a debit balance. If the credits are more than the debits, there is a credit balance.

Ledger entries

Transactions in the journal are grouped by accounts in the order of assets, liabilities, equity, income, and expenses. They are then transferred to the ledger. Ledger entries appear in the order of accounts compared to the journal’s chronological order.

Characteristics of ledger accounts:

The ledger accounts have following characters which are given below;

• The accounts have two sides one is debit which is left the side of accounts and anther is credit which is the right side of accounts.
• The debit attitudes of all transactions are recorded on the debit side and the credit attitudes of all transactions are recorded on the credit side in given date.
• Differences between the two sides are represented balance. The debit balance shows when the excess of debit side over credit side and the excess of credit side are over debit side is called credit balance.
• In the month/year end the two side balance is equal and the excess balance is written over the closing balance at the end of the month date.
• At the end, the closing balance forwarded next year as a beginning balance.

Types of ledger accounts:

According to accounting formula, There are two types of ledger accounts

1. Standard type
2. Self-balancing types

Standard Types of Ledger Accounts:

How to write the accounts in ledger? For better understanding, the standard type of accounts is as follows;

Date	Particulars	J.R	Amount	Date	Particulars	J.R	Amount
2017 Dec. 20	Cash A/C		1,500	2017 Dec. 20	Purchases A/C		1,500

In this ledger accounts, you can see the left-hand side has one account which side named is debit. On the other hand, right-hand side of the accounts is called credit but in those days debit and credit word are not shown because left-hand side means debit and right-hand side means credit its known to all.

Posting method

When the entries transfer from journal to ledger accounts is called pasting. The method of posting is as follows;

• firstly, you can post the debit entry from journal to the ledger
• to record the transaction date of the journal in the ledger account
• The opposite account of debit is recorded in ledger account.
• the reference number of the journal records into the ledger account
• to record the debit amount is ledger accounts
• Posting the opposite of debit account and do the same procedure.

An accounts balance:

Difference between two sides of accounts is called balance. The balance is deficit side and written on this side is also an equal balance side. The process of equalizing two sides is called balancing side.

The process of balancing side is referred as follows;

• Sum the amount of both side and written down as a rough.
• Figure out the difference between two sides.
• Add up the amount of deficit side for balance.
• And finally, the balancing amount is written down in a double line.

Now the formula looks like if the debit side is bigger than credit side amount than the debit balance. If the credit side is bigger than the debit balance is called credit balance. Finally, if the two sides amount is equal than the balance is zero.

Debit balance is written in credit side as a closing balance and date will be at the end of the month or year. Similarly, credit balance is written in debit side as a closing balance and date of the end of the month. After that, the closing balance recorded figure will next month or next year as a beginning balance.

Self-Balancing Ledger Accounts:

The self-balancing method is mostly used in practical life. Its advantage is you can look the closing balance in the same column in a ledger. So that, after journalized entry you can measure your ledger amount of closing balance in the same ledger account at a glance.

Writing and Prepararing Ledger Account

• Drawing the Form: Get pen and paper, start drawing the ledger account.
• Posting transactions from journal to respective ledger account.
• Folioing: Put the page number for a journal entry on the ledger account’s folio column.
• Casting: Separating debit and credit amount.
• Balancing: find the difference between debit and credit to get debit or credit balance of the account.

1. Drawing the Form: Get pen and paper, Start Drawing the Ledger Account.

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

Thereafter, both sides are again divided into four columns i.e., this is divided into eight columns having four on the debit side and four on the credit side.

In the first column of both the sides’ dates, the second particulars, and the third journal folio and the fourth amount are written.

2. Posting Transactions from Journal to Respective Ledger Account.

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

A debit account of the journal is posted on the debit side of that account and the credit account of the journal is posted on 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 the 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: Put the Page Number for a Journal Entry on the Ledger Account’s Folio Column.

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

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

4. Casting: Separating Debit and Credit Amount.

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

5. Balancing: Find the Difference between Debit and Credit to get Debit or Credit balance of the Account.

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

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

Thereafter the amount of difference is added in the deficit side to equalize both sides. This sort of difference between the 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 the debit side is greater than the total amount of credit side of the ledger than the difference between both sides is called debit balance.

For example,

the total of the 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 to $2,000 is a debit balance.

As per the rule of debit and credit under the 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 credit money column of a particular account is $5,000 and that of the 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.