The ledger and posting

The ledger is the principal book of accounts. It has a separate account for each item: cash, each customer, each supplier, purchases, rent and so on. All the transactions about one item are collected in its account, so only the ledger can tell you how much cash you have or how much Rahim owes you.

Copying entries from the journal into the ledger is called posting. The journal is the book of first entry, kept in date order; the ledger is the book of second (final) entry, sorted by account.

The posting rule, in one line: on each account's own side, write the other account's name and the amount. Rent ₹5,000 paid in cash (Rent Dr, To Cash): in the Rent account, on the debit side, write "To Cash 5,000". In the Cash account, on the credit side, write "By Rent 5,000". Debit-side entries start with To, credit-side entries with By. Note the journal page in the J.F. column.

A compound entry is where most mistakes happen. Cash ₹15,000 and Discount Allowed ₹1,000 debited, To Ram ₹16,000: Cash gets "To Ram 15,000", Discount Allowed gets "To Ram 1,000", and Ram's account gets two lines on the credit side, "By Cash 15,000" and "By Discount Allowed 1,000".

At the end of the period each account is balanced. If the debit side is bigger, the account has a debit balance (assets, expenses); if the credit side is bigger, a credit balance (liabilities, capital, income). Example: cash in from capital ₹2,00,000 and cash sales ₹15,000 on the debit side, ₹80,000 put in the bank on the credit side: a debit balance of ₹1,35,000.

Permanent accounts (assets, liabilities, capital) are balanced, carried down (c/d) and brought down (b/d) to the next period. Temporary accounts (incomes and expenses) are closed by transferring them to the trading and profit and loss account. Each account is opened only once in the ledger.