Movie Case Study
The scene from the movie Dhol shows Martan communicating to the accountant to balance various accounts. He initially says to close the account of a certain individual. Later he goes on to say to balance some accounts. In this blog, Learning Perspectives will explore the meaning of a ledger balance.
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 is 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
What is a Ledger Balance?
If we are to calculate the cash balance we can create a T-account and it would look something like this.
Cash is one of the main business accounts. This is made to understand how much ready balance is available in the business. How much is left or the cash balance is in negative.
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 say the 1st Jan, journal entry is Cash A/c debited to accounts payable which mean cash is coming in the business. Since cash is being debited, we will record the entry under the debit side ‘To accounts Payable’. See the account above with the entry of Rs. 1,00,000.
Similarly, 2nd Jan entry, in which equipment is debited to cash. While posting, it will be posted on the credit side of the ledger since cash is credited.
Total debits (increases) = Rs. 1,35,000, total credit (decreases) = Rs. 1,25,000. Since cash is an asset, amount that is debited will mean an increase in balance while amount on credit side will mean decrease in balance. A ending balance of Rs. 10,000 is calculated. (1,35,000-125,000).