CBSE Class 11 » CBSE Class 11 Study Materials » Accounting » Balancing of Ledger Accounts

Balancing of Ledger Accounts

The Ledger, also known as the chart of accounts, is used to generate financial statements and comprises a list of all active accounts.

It is a book in which all  the accounts are kept. Only the accounts produce any financial statement relating to the company’s financial status. As a result this ledger is referred to as the main book. It is important to link all of the data for any account available in the ledger. This accounting book is the most significant book in every firm, which is why it is referred to as the “King of All Books.” In addition, the ledger book is often known as the final entry book. The ledger account is the book that contains all the accounting information of the company. 

Ledger Account

A ledger account usually contains a lot of information. Dates, particulars, amount, and j.f. are just a few of the items. 

Sub Division of Ledger

There are three different types of ledgers:

  1. Sales Ledger 
  2. Purchase Ledger 
  3. General Ledger

 Sales Ledger: A ledger is a record of a company’s sales transactions, such as items, services, or the cost of commodities sold to clients. The sales revenue and income statement are available in this ledger.

Purchase Ledger: A purchase ledger is a ledger in which a company records the transactions of purchasing services, products, or goods from other companies. It helps us to know how much is paid to other companies. 

General Ledger:  There are two types of general ledger: nominal ledger and private ledger. The nominal ledger records spending, revenue, depreciation, insurance, and other financial transactions. Private ledgers contain private information such as salary, wages, capitals, and so on. Everyone does not have access to the private ledger.

Ledgers Posting

After the transactions are recorded in the diary, they are put in the ‘Ledger,’ which is the main book. Ledger posting is the process of transferring entries from the journal to the appropriate ledger accounts. The purpose of ledger balancing is to identify disparities at the end of the year. This procedure continues throughout the year, and the ledger accounts are closed, tallied, and balanced at the end of the fiscal year. The technique is referred to as ledger account balancing.

The posting of entries in the ledger is governed by a set of rules.

1.Each account has its own account, and entries from the journal are uploaded to the appropriate ledger account.

2.When publishing entries in ledger accounts, words like ‘To’ and ‘By’ are utilised. When accounts are posted in the debit side column of a specific account, the term ‘To’ is used. When accounts are posted in the credit side column of a specific account, the term ‘by’ is utilised. The debit and credit accounts are represented by these terms, which may or may not have any meaning.

3.The account that is debited in the journal should be debited in the ledger book as well, but the reference should be to the appropriate credit account.

Ledger Balancing 

All accounts that are operated in the ledger book are closed, tallied, and balanced at the conclusion of each accounting year. Balancing ledgers entails determining the difference between a given account’s debit and credit amounts, i.e. the heavier total and lighter total difference, and recording that difference on the lighter total side.

Balance a Ledger Account by following these steps:

1.To avoid errors, compute the totals of the debit and credit columns separately on a rough page. Subtract the lower from the higher to find the difference between the heavier and lighter totals. A balance amount is the difference between the two amounts.

2.If the debit side’s total exceeds the credit side’s total, the balance is referred to as a “Debit Balance,” and it is recorded on the account’s credit side (the side with the smaller amount) as “By Balance c/d” or “By Balance c/f.” c/d denotes carried down, while c/f denotes carried forward.

3 Similarly, if the credit side total exceeds the debit side total, the amount is referred to as “Credit Balance.” The difference is stated as “To balance c/d” or “To balance c/f” on the debit side of the account.

4.The heavier total should be written in both columns’ totals once we have it. Draw two lines across the total beneath the amounts, indicating that the account is closed and balanced.

5.The current year’s opening balance is the same as the previous year’s closing balance. If there is a debit, it should be represented as “To Balance b/d” or “To Balance b/f” on the debit side of a given account. B/d stands for brought down, and b/f stands for brought forward.

Conclusion

The ledger summarizes transactions by account, displaying debits and credits for each account. Ledger summaries typically also illustrate how different account balances are performing (for example, balances for cost accounts and balances for revenue accounts)

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Frequently Asked Questions

Get answers to the most common queries related to the CBSE Class 11 Examination Preparation.

What is meant by balancing in a ledger?

Answer. A ledger balance is a balance in an account at the beginning of each d...Read full

Which accounts are not balanced in the ledger?

Answer. Nominal Accounts are those accounts which are not balanced and transfe...Read full

Why is it important to balance the ledger?

Answer.  A zero balance account (ZBA) is an account in which a balance of zer...Read full

What is the purpose of the ledger?

Answer. A ledger contains summarized information from the journals and is recorded as debits and credits. The ledger...Read full

What is meant by zero balance in ledger?

Answer. A zero balance account (ZBA) is an account in which a balance of zero is maintained by transferring funds to...Read full