What is a Ledger?

Movie Case Study

The scene that you just saw shows a conversation between Arun Pradeep (played by Amol Palekar) and Raman (Arun’s subordinate). Raman is not treating Arun like his manager until Arun points out a mistake he committed while preparing the ledger statement. Later Arun asks for the register that has journal entries.

In this blog, Learning Perspectives will explore the meaning of a ledger.

What is a Ledger?

After the preparation of the Journal which lists down entries chronologically, the next step is posting it in the general ledger, why do we do that? Journal is a good way to locate accounting errors but not a good way to calculate accounting balances. To make the calculation simple, a ledger was created.

The process of transferring entries from the journal to the ledger is called posting. A ledger is also called a T account. Why? because it is in the shape of a T, the left side of the account is debit while the right side of the account is credit.

Format of a Ledger

How to transfer Journal entries to a Ledger?

Now, let’s understand how we can post from a journal to the T-account.

These were the journal entries we created in the previous module, now if we are to calculate the cash balance we can create a T-account and it would look something like this.

So, wherever cash is being debited in the journal entries, we put it on the left side and wherever it is being credited we put it on the right side.

Let’s see the 1st Jan 2018 journal entry which says Cash A/c debited to accounts payable which means cash is coming into the business. Since cash is being debited, we will record the entry under the debit side ‘To accounts Payable’.