Characteristics of Ledger Account

The ledger has the following main characteristics:

 

It has two identical sides -left hand side (debit side) and right hand side (credit side).

 Debit aspect of all the transactions are recorded on the debit side and credit aspects of all the transactions are recorded on credit side according to date.

The difference of the totals of the two sides represents balance. The excess of debit side over credit side indicates debit balance, while excess of credit side over debit side indicates the credit balance. If the two sides are equal, there will be no balance.

Generally the balance is drawn at the year end and recorded on the lesser side to make the two sides equal. This balance is know as closing balance.

The closing balance of the current year becomes the opening balance of the next year.

Types or Forms of Ledger Accounts:

There are two forms of ledger accounts. These are:

Standard form

Self-balancing form

Posting Procedure:

Transferring information i.e. entries from journal to ledger accounts is called posting. The procedure of posting from journal to ledger is as follows:

Locate the ledger account from the first debit in the journal entry.

Record the date in the date column on the debit side of the account. The date is the date of transaction rather than the date of the posting.

Record the name of the opposite account (account credited in entry) in the particular (also know as reference column, description column etc) column.

Record the page number of the journal in the journal reference (J.R) column from where the entry is being posted.

Record the amount of the debit in the "amount column"

Locate the ledger account for the first credit in the journal and follow the same procedure.

Balancing an Account:

The difference between the two sides of an account is its balance. The balance is written on the lesser side to make the two sides equal. The process of equalizing the two sides of an account is known as balance 

The rules for balancing an account are stated as below:   

•  Add up the amount columns of both the sides of an account and write the totals in a separate slip of paper. 
• Find out the difference of the two totals. 
• Write down the difference on the lesser side of the account. 
• Now total up both the sides and write the totals and draw double lines under them.

  Again write the difference on the opposite side below the double line.

 If the debit side of an account is heavier, its balance is known as debit balance. and if the credit side of an account is heavier its balance is know as credit balance. If the two sides are equal, that account will show zero balance. The rules for determining the balance is as follows:

Total debit = More than total credit= Debit balance

 

Total credit = More than total debit= Credit balance

 

Total debit = Total credit= Nil balance

It may be noted that at the time of balancing an account debit balance is placed on the credit side and credit balance on debit site. This balance is known as closing balance. What is closing balance in this year, is the opening balance of the next year.

Format of Ledger Account