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Wednesday, October 28, 2009

Ledger Accounts

It is common sense that a business should keep a record of the transactions that is makes, the assets it acquires and liabilities are incurs. When the time comes to prepare a profit and loss account and a balance sheet, the relevant information can be taken from those records.
The records of transactions, assets and liabilities should be,

  • Dated and in chronological order,
  • Built up in cumulative totals, day by day, week by week, month by month, year by year,

In our previous posts we discussed the first step in this process, which is to list all the transactions in various books of prime entry. Now we must turn our attention to the method used to summarize these records, ledger accounting and double entry.

The general ledger (The normal ledger)

The normal ledger (general ledger) is an accounting record which summarizes the financial affairs of a business. It contains details of assets, liabilities and capital, income and expenses, and so profit and loss. It consists of a large number of different accounts, each account having its own purpose or name and identity or code.

Format of a Ledger Account

There are two sides to the account and an account heading on top and so it is convenient to think in terms of “T” accounts.

  • On top of the account is its name.
  • There is a left side, called debt side.
  • There is right side, called credit side.


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