FINANCIAL MANAGEMENT & COST ACCOUNTING

Module 2. Accounting procedure

Lesson 8
POSTING IN LEDGERS AND BALANCING THE LEDGERS

8.1 Introduction

A ledger is represented by a “T” account. Separate T accounts ( or ledgers) are prepared for each and every account maintained by the company. For example we may have T accounts for cash, Mr. B.& company, Rent

8.2 Ledger Posting

After preparing a separate ledger for each account, one has to refer to the journal entries. After locating any transaction affecting the given account in the journal, that journal entry (along with its date, amount, and credit/debit effect) is to be posted in the ledger. This is called Ledger- posting.

The entry to be posted in the ledger contains all information such as date, Amount (Dr.) or Amount (Cr.), Journal Folio no., and the name of the corresponding account to be written in the “particulars” column.

While transferring the journal entry into the ledger , it is to be remembered that the account (ledger) which is credited in the journal, is written in the debit side of the ledger which is debited in the journal entry and vice -versa. Similarly, the names of accounts which appear on the debit side of any ledger always contain a prefix “To” whereas the names of accounts which appear on the credit side of any ledger always contain a prefix “By”.

8.3 Balancing a Ledger

The steps for balancing a given ledger are as follows:-

1. First the total of both (debit and credit) sides of the ledger account are done.
2. If the debit side is greater than credit side by say Rs. 100, then the “difference amount i.e Rs.100” is put into the credit side by passing an entry “By balance c/d” Rs.100. By doing so, both the sides of the account become equal. The last step is to transfer the amount written in “by balance c/d” to other side of the account ( below the total line) by writing “to balance b/d”. This becomes the opening entry for the next accounting period.
3. If the credit side is greater than debit side, then the “difference amount” is put into the debit side by passing an entry “To balance c/d”. By doing so, both the sides of the account become equal. The last step is to transfer the amount written in “To balance c/d” to other side of the account (below the total line) by writing “By balance b/d”. This becomes the opening entry for the next accounting period.
4. Note: only real and personal accounts are to be balanced. Nominal accounts are generally not balanced rather at the end of the accounting period; their totals are transferred to Profit and loss account.

Illustration 8.1

Consider the data given in illustration 7.1 and prepare the individual ledger Account from the journal entries.

Cash A/c

Dr								Cr
Date	Particulars	J.F.	Amount	Date	Particulars		J.F.	Amount
1	To Capital A/c		20000	8	By wages A/c			500
4	To Sales A/c		2500	15	By wages A/c			500
12	To Sales A/c		4000	22	By wages A/c			500
19	To Sales A/c		3500	24	By Stationary A/c			250
25	To Sales A/c		7500	29	By wages A/c			500
				31	By Bank A/c			10000
				31	By Balance C/d			25250
			37500					37500
1.04	To Balance B/d		25250

Capital A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
31	To Balance C/d		120000	1	By Bank A/c		100000
				1	By Cash A/c		20000
			120000				120000
				1.04	By Balance B/d		120000

Bank A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
1	To Capital A/c		100000	2.03	By furniture and fitting A/c		20000
31	To Cash A/c		10000	2.03	By Scooter A/c		30000
				2.03	By rent A/c		2500
				10	By insurance A/c		250
				17	By KK and Co A/c		15000
				31	By Balance C/d		35250
			110000				110000
1.04	To Balance B/d		35250

Furniture and Fittings A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
2	To Bank A/c		20000	31	By Balance C/d		20000
			20000				20000
1.04	To Balance B/d		20000

Two Wheeler A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
2	To Bank A/c		30000	31	By Balance C/d		30000
			30000				30000
1.04	To Balance B/d		30000

Rent A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
2	To Bank A/c		2500

Goods A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
3.03	To KK and Co A/c		25000
19.03	To RC and Co A/c		12500
			37500

KK and Co A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
15.03	To Returns Outward A/c		3000	3.03	By Goods A/c		25000
17.03	To Bank A/c		15000
31.03	To Balance C/d		7000
			25000				25000
				1.04	By Balance B/d		7000

Sales A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
				4.03	By Cash A/c		2500
				12.3	By Cash A/c		4000
				19.3	By Cash A/c		3500
				25.3	By Cash A/c		7500
							17500

Wages A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
8.03	To Cash A/c		500
15.03	To Cash A/c		500
22.03	To Cash A/c		500
29.03	To Cash A/c		500
			2000

Insurance A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
10.03	To Bank A/c		250

Returns Outward A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
				15.03	By KK and Co A/c		3000

Stationery A/c

Dr							Cr
Date	Particulars	J.F.	Amount	Date	Particulars	J.F.	Amount
29	To cash a/c		250	31	By Balance c/d		250
			250				250
1.04	To Balance b/d		250

8.4 Trial Balance

After preparing the individual ledger Accounts from the journal entries in the above manner, and balancing or closing the Accounts, the next step is to prepare a trial balance. A trial balance is prepared by listing various debit balance Account in one column and all the credit balance Account in another column and checking the total of both the columns. If the total in both – the debit column and credit column is same, then we can say that the trial balance agrees and there does not seem to a any arithmetical error in the Accounts. Such a trial balance prepared from after balancing the individual ledgers (i.e after ascertaining the net debit or credit balance in a ledger) is called a trial balance by Net Balance method.

8.4.1 Trial Balance ( Net Balance Method)

Sr. No.	Name of Account	Debit Balance	Credit Balance
1	Cash A/c	25250
2	Capital A/c		120000
3	Bank A/c	35250
4	Furniture and Fitting A/c	20000
5	Scooter (Two - Wheeler A/c)	30000
6	Rent A/c	2500
7	Goods A/c	37500
8	ZK and Co A/c		7000
9	Sales A/c		17500
10	Wages A/c	2000
11	Insurance A/c	250
12	Returns Outward A/c		3000
13	RC and Co A/c		5500
14	Stationary A/c	250
	Total	153000	153000