Ledger Posting Basics

A ledger is a book or place where all transactions related to one account are collected together.

Journal records transactions date-wise.

Ledger arranges the same transactions account-wise.

Example: if Cash is used in many transactions, the Cash Account in the ledger shows all cash received and all cash paid in one place.

Simple line: Journal tells the story transaction by transaction. Ledger groups the story account by account.

Suppose Riya runs a stationery shop.

In one week, she starts business with cash Rs.50,000.

She buys goods for cash Rs.10,000.

She pays rent Rs.3,000.

She sells goods for cash Rs.5,000.

If we look only at journal entries, we can see each transaction one by one.

But if Riya asks, How much cash is left?, we need the Cash Account in the ledger.

Ledger helps us know total cash received, total cash paid, balance of each account, amount receivable from customers, amount payable to creditors, and balances for Trial Balance.

Riya starts a small stationery shop.

Entry 1: Cash A/c Dr. Rs.50,000 / To Capital A/c Rs.50,000.

Entry 2: Purchases A/c Dr. Rs.10,000 / To Cash A/c Rs.10,000.

Entry 3: Rent A/c Dr. Rs.3,000 / To Cash A/c Rs.3,000.

Entry 4: Cash A/c Dr. Rs.5,000 / To Sales A/c Rs.5,000.

Question: how much cash does Riya have now?

Cash received = Rs.50,000 + Rs.5,000 = Rs.55,000.

Cash paid = Rs.10,000 + Rs.3,000 = Rs.13,000.

Cash balance = Rs.55,000 - Rs.13,000 = Rs.42,000.

This is why ledger is useful. It groups all Cash transactions together.

Ledger posting means transferring information from journal entries to the correct ledger accounts.

If an account is debited in journal, post it on the debit side of that account.

If an account is credited in journal, post it on the credit side of that account.

Example: Purchases A/c Dr. Rs.10,000 / To Cash A/c Rs.10,000.

Purchases A/c is posted on the debit side for Rs.10,000.

Cash A/c is posted on the credit side for Rs.10,000.

Simple line: Debit in journal goes to debit side of ledger. Credit in journal goes to credit side of ledger.

A ledger account has two sides.

The left side is called the debit side.

The right side is called the credit side.

For Cash A/c, cash received appears on the debit side.

For Cash A/c, cash paid appears on the credit side.

Do not overthink it at first. Put debit entries on the debit side and credit entries on the credit side.

Step 1: read the journal entry.

Step 2: identify the account written with Dr.

Step 3: post that account on its debit side.

Step 4: identify the account written after To.

Step 5: post that account on its credit side.

Step 6: check that both accounts have been posted.

Step 1: add the debit side total.

Step 2: add the credit side total.

Step 3: compare both sides.

Step 4: higher side minus lower side equals balance.

If debit total is higher, the account has debit balance.

If credit total is higher, the account has credit balance.

If both sides are equal, the account is balanced and has no balance.

Example: Cash debit total Rs.55,000 and credit total Rs.13,000. Balance is Rs.42,000 debit balance.

Balance c/d means balance carried down.

It is written to close the ledger account for the period.

Balance b/d means balance brought down.

It is the same balance brought into the next period.

Very simple line: Balance c/d closes the account. Balance b/d opens it again in the next period.