Ledger

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General ledger. General ledger.gif
General ledger.

A ledger [1] is the principal book or computer file for recording and totaling economic transactions measured in terms of a monetary unit of account by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account.

Contents

Overview

The ledger is a permanent summary of all amounts entered in supporting journals which list individual transactions by date. Every transaction flows from a journal to one or more ledgers. A company's financial statements are generated from summary totals in the ledgers. [2]

Ledgers include:

For every debit recorded in a ledger, there must be a corresponding credit so that the debits equal the credits in the grand totals.

Types on the basis of purpose

The three types of ledgers are the general, debtors, and creditors. [4] The general ledger accumulates information from journals. Each month all journals are totaled and posted to the General Ledger. The purpose of the General Ledger is therefore to organize and summarize the individual transactions listed in all the journals. The Debtor Ledger accumulates information from the sales journal. The purpose of the Debtors Ledger is to provide knowledge about which customers owe money to the business, and how much. The Creditors Ledger accumulates information from the purchases journal. The purpose of the Creditors Ledger is to provide knowledge about which suppliers the business owes money to, and how much.

Types on the basis of format

A ledger can have the following two formats.

Physical ledger

This type of ledger is made up of paper. It can be physically touched. Ledgers were invented several centuries ago and this used to be the only available form until the widespread adoption of computers, in the mid to late 20th century.

Digital ledger

This type of ledger is a digital file, or collection of files, or a database. It can be manipulated only by means of computer programs, since it does not have a physical form.

Etymology

Ledger from 1828 Hauptbuch Hochstetter vor 1828.jpg
Ledger from 1828

The term ledger stems from the English dialect forms liggen or leggen, meaning "to lie or lay" (Dutch: liggen or leggen, German: liegen or legen); in sense it is adapted from the Dutch substantive legger, properly "a book laying or remaining regularly in one place". Originally, a ledger was a large volume of scripture or service book kept in one place in church and openly accessible. According to Charles Wriothesley's Chronicle (1538), "The curates should provide a booke of the bible in Englishe, of the largest volume, to be a ledger in the same church for the parishioners to read on."

In application of this original meaning the commercial usage of the term is for the "principal book of account" in a business house.

See also

Notes

  1. From the English dialect norms liggen or leggen, to lie or lay; in sense adapted from the Dutch substantive legger
  2. Haber, Jeffry (2004). Accounting Demystified. New York: AMACOM. p. 15. ISBN   0-8144-0790-0.
  3. Whiteley, John. "Mr". Moncton Accountant | John Whiteley CPA. John Whiteley CPA. Retrieved 1 July 2017.[ permanent dead link ]
  4. "What is a Ledger?". Online Learning for Sports Management. Retrieved 27 September 2018.
  5. Distributed Ledger Technology: beyond block chain (PDF) (Report). UK Government, Office for Science. January 2016. Retrieved 29 August 2016.

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Debits and credits

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Special journals

Special journals are specialized lists of financial transaction records which accountants call journal entries. In contrast to a general journal, each special journal records transactions of a specific type, such as sales or purchases. For example, when a company purchases merchandise from a vendor, and then in turn sells the merchandise to a customer, the purchase is recorded in one journal and the sale is recorded in another.

Unified ledger accounting

The concept of a unified ledger accounting application is often new to people who have used traditional modular accounting systems, though the idea is very simple. Traditional modular systems have separate General, Purchase and Sales Ledgers which reflect times when accountants wrote information into large paper books or ledgers. Balances on control accounts were copied from one book to another, so that a full set of accounts could be completed and as an additional process control accounts were reconciled. This ensured that all of the individual entries added correctly to the control totals before any transfers were made.

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A purchase returns journal is a prime entry book or a daybook which is used to record purchase returns. In other words, it is the journal which is used to record the goods which are returned to the suppliers. The source document which is used as an evidence in recording transactions into purchase returns journal is the Debit note.

References

Further reading