Accounting and Taxation

Publication and Equilibrium of Account Books

The general ledger comprises all transactions, but what if we need information on transactions involving a specific account? It is impractical to count and determine the total amount or number of transactions, as they likely occurred on different dates. Therefore, separate accounts are created to record transactions related to each specific account. Eventually, the ledger is balanced to obtain the account's status at the end of the fiscal year.

Recording in the Ledger

Once the transactions have been recorded in the journal, they are transferred to the principal book known as the "Ledger." This process of moving entries from the journal to the respective ledger accounts is called ledger posting. Balancing of the ledgers is performed to identify discrepancies at the end of the year.

Ledger posting involves entering information from the journal into the ledger, in the appropriate accounts for individual records. Debits are posted on the debit side, while credits are posted on the credit side of the corresponding account.

This process continues throughout the year, and at the end of the fiscal year, the ledger accounts are closed, totaled, and balanced. This procedure is referred to as balancing the ledger accounts.

Guidelines for Ledger Posting

A separate account is opened for each account, and entries from the journal are posted to the respective ledger account accordingly.

The terms "To" and "By" are used when posting entries in the ledger accounts. "To" is used when accounts are posted on the debit side column of a specific account, while "By" is used when accounts are posted on the credit side column of a particular account. These terms may lack significance but are used to represent debit and credit accounts.

The account debited in the journal should also be debited in the ledger book, but the reference should be made to the corresponding credit account.

Balancing the Ledger

At the end of each accounting year, all the accounts maintained in the ledger book are closed, totaled, and balanced. Balancing the ledgers involves finding the difference between the debit and credit amounts of a particular account, i.e., the heavier total and the lighter total difference, and recording that difference amount on the lighter total side.

Steps for Balancing a Ledger Account

First, calculate the totals of the debit and credit columns separately on a rough sheet to prevent errors. Determine the difference between the heavier total and the lighter total by subtracting the lower amount from the higher amount. This difference is referred to as the balance amount.

If the total of the debit side is greater than the total of the credit side, the balance is called a "Debit Balance" and is written on the credit side (the side with the lower amount) of that particular account as "By Balance c/d" or "By Balance c/FD." Here, c/d means carried down, and c/FD means carried forward.

Similarly, if the total of the credit side exceeds the total of the debit side, the balance is referred to as a "Credit Balance." The difference amount is written on the debit side of the account as "To balance c/d" or "To balance c/fd."

Once the heavier total is determined, it should be written in both total columns. Draw double lines across the total, below the amounts, to indicate that the account is closed and balanced.

The closing balance from the previous year serves as the opening balance for the current year. If there is a debit balance, it should be shown on the debit side of the respective account as "To Balance b/d" or "To Balance b/fd." Here, b/d means brought down, and b/fd means brought forward.

 Note: Nominal accounts are not balanced; their balances are transferred to the profit and loss account.

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QUESTION & ANSWER

1.What is the purpose of creating separate accounts in the ledger?

A.To record transactions involving specific accounts

B.To determine the total number of transactions

C. To identify discrepancies in the ledger

D. To balance the ledger accounts

Ans: A. To record transactions involving specific accounts

2. What is the process called when entries from the journal are transferred to the ledger?

A. Journal balancing

B.Ledger closing

C.Ledger posting

D. Ledger totaling

Ans: C. Ledger posting

3.How are debits and credits posted in the ledger?

A.Debits on the credit side and credits on the debit side

B. Debits on the debit side and credits on the credit side

C. Debits and credits on the same side of the account

D. Debits and credits on different sides of the account

Ans: B. Debits on the debit side and credits on the credit side

4.What is the purpose of balancing the ledger accounts?

A. To calculate the total amount of transactions

B. To identify errors in the ledger

C. To close the ledger for the fiscal year

D. To determine the opening balance for the next year

Ans: C.To close the ledger for the fiscal year

5.How is the balance amount recorded when balancing a ledger account?

A.By Balance c/d or By Balance c/FD

B. To Balance c/d or To Balance c/fd

C.Carried down or Carried forward

D.Brought down or Brought forward

Ans: A.By Balance c/d or By Balance c/FD

6.What does "b/d" stand for in ledger balancing?

A. Balance carried down

B.Balance carried forward

C. Balance brought down

D.Balance brought forward

Ans: C. Balance brought down

7.Which accounts are transferred to the profit and loss account?

A. Ledger accounts

B.Nominal accounts

C.Debit accounts

D. Credit accounts

Ans: B. Nominal accounts