What is a Ledger ?
Ledger also known as the second book of entry, is defined as a book that summarizes all the journal entries in the form of debit and credit so that they can be used for future reference and for creating financial statements.
It is the most important book of accounting as it helps in the creation of trial balance which then acts as a base for the preparation of financial statements.
It is also known as the book of final entry.
Why General Ledger is needed ?
The following points highlight the importance of ledger to a business :-
- It provides an accurate record of all financial transactions
- It serves as a base for preparing other financial statements.
- It makes filing tax returns easy
- The ledger provides useful information needed by investors for decision making process.
DIFFERENT TYPES OF LEDGER
There are 3 types of Ledger, namely –
- SALES LEDGER :- First among different types of ledgers is “Sales or Debtors’ ledger”. It is the book (or set of books ) in which the personal accounts of credit customers are kept.
A credit customer is also known as debtor.
In this ledger, date wise transaction of the debtors, i.e. to whom goods have been sold in credit is recorded. It helps in determining the due amount of the debtors at the end of the year .
- CREDITOR’S LEDGER :- This ledger is also known as “Purchases ledger.” It is the book (or set of books ) in which the personal accounts of credit suppliers are kept.
A credit supplier is also known as creditor. The information in the Purchases Journal or Purchases Return Journal is transferred to this Ledger.
The total monetary amount inside the purchase ledger is shown in the trial balance and the balance sheet at its appropriate place.
- GENERAL LEDGER :- All other accounts not recorded in the Sales or Purchase Ledger is recorded in the General Ledger.
It can also be termed as summarised ledger of all the nominal and real accounts such as a/c receivable, inventory account, cash account, investment account, machinery account, etc.
Accountants often use this ledger as a last resort for business transactions.
Thus , in simple words a Ledger is an accounting book in which various transactions of an enterprise are posted under different accounts.
Hence it can be concluded that preparing ledger is the essential part of the accounting process.