Ledger posting and balancing of accounts

The journal tells the story in date order. The ledger sorts the same story account by account, so you can see where each one stands.

What the ledger is

The ledger is the principal book of accounts. It has a separate account for every person, asset, liability, expense and income. Entries from the journal are transferred to these accounts; the transfer is called posting. The journal shows what happened on a day. Only the ledger can answer questions such as "how much does Kabir owe us?" or "how much cash do we have?"

Format of an account

An account is shaped like the letter T. The left is the debit side and the right is the credit side. Each side has columns for Date, Particulars, Journal Folio (J.F.) and Amount. The J.F. column is left out of the tables here.

Rules of posting

Open an account for each name that appears in the journal.
For the account debited in the journal: post on its debit side, and in Particulars write "To" followed by the name of the account credited.
For the account credited in the journal: post on its credit side, and write "By" followed by the name of the account debited.
The amount and date are the same as in the journal.

So each account names the other account of the entry. In the Cash A/c, the capital brought in appears as "To Capital A/c" on the debit side.

Balancing an account

Total both sides.
Find the difference.
Write the difference on the lighter side as "Balance c/d" (carried down), with the last date of the period.
Now both sides total the same. Rule off the totals.
Bring the balance down on the opposite side as "Balance b/d" (brought down), dated the first day of the next period.

If the debit side was heavier, the account has a debit balance; if the credit side, a credit balance. Assets and expenses normally show debit balances; liabilities, capital and incomes show credit balances.

Solved example: posting the journal of Arjun Traders

These accounts are posted from the eleven entries on the journal entries page.

Dr. Cash A/c Cr.
Date	Particulars	₹	Date	Particulars	₹
Apr 1	To Capital A/c	3,00,000	Apr 2	By Bank A/c	2,00,000
Apr 9	To Sales A/c	18,000	Apr 28	By Drawings A/c	6,000
Apr 20	To Kabir	37,500		By Balance c/d	1,49,500
		3,55,500			3,55,500

Dr. Bank A/c Cr.
Date	Particulars	₹	Date	Particulars	₹
Apr 2	To Cash A/c	2,00,000	Apr 6	By Furniture A/c	25,000
			Apr 24	By Nisha & Co.	59,000
			Apr 30	By Salaries A/c	15,000
			Apr 30	By Rent A/c	8,000
				By Balance c/d	93,000
		2,00,000			2,00,000

Dr. Kabir Cr.
Date	Particulars	₹	Date	Particulars	₹
Apr 12	To Sales A/c	40,000	Apr 15	By Sales Return A/c	2,000
			Apr 20	By Cash A/c	37,500
			Apr 20	By Discount Allowed A/c	500
		40,000			40,000

Dr. Nisha & Co. Cr.
Date	Particulars	₹	Date	Particulars	₹
Apr 24	To Bank A/c	59,000	Apr 4	By Purchases A/c	60,000
Apr 24	To Discount Received A/c	1,000
		60,000			60,000

Dr. Sales A/c Cr.
Particulars	₹	Date	Particulars	₹
To Balance c/d	58,000	Apr 9	By Cash A/c	18,000
		Apr 12	By Kabir	40,000
	58,000			58,000

Dr. Capital A/c Cr.
Date	Particulars	₹	Date	Particulars	₹
	To Balance c/d	3,00,000	Apr 1	By Cash A/c	3,00,000
		3,00,000			3,00,000

Reading the accounts

Cash A/c has a debit balance of ₹1,49,500: cash in hand on 30 April.
Bank A/c has a debit balance of ₹93,000: money at the bank.
Kabir's account and Nisha & Co.'s account have no balance. Both are settled, so the two sides agree and nothing is carried down.
Sales A/c has a credit balance of ₹58,000, the total sales of the month.
A compound entry is posted line by line. In Kabir's account, the single journal entry of April 20 gives two postings: By Cash and By Discount Allowed.

The remaining accounts (Purchases ₹60,000 Dr., Furniture ₹25,000 Dr., Sales Return ₹2,000 Dr., Discount Allowed ₹500 Dr., Discount Received ₹1,000 Cr., Drawings ₹6,000 Dr., Salaries ₹15,000 Dr., Rent ₹8,000 Dr.) have one entry each, so the entry itself is the balance. All these balances are listed in the trial balance.

Which accounts are balanced and which are closed

Personal and real accounts (debtors, creditors, cash, bank, assets, capital) are balanced and their balances are carried to the next period. Nominal accounts (expenses and incomes) are not carried forward: at the year end they are closed by transfer to the Trading and Profit and Loss Account. For a monthly trial balance, as here, their totals are simply listed.

Common mistakes

Posting on the wrong side. The account debited in the journal is always posted on its debit side.
Writing the account's own name in its Particulars column. Write the name of the other account.
Writing "Balance c/d" on the heavier side. It goes on the lighter side to make the totals equal.
Forgetting to bring the balance down. An account without "Balance b/d" has no opening figure for the next period.

Questions students ask

What is the difference between journal and ledger?

The journal records transactions in date order as they happen. The ledger classifies them account by account. The journal is the book of original entry; the ledger is the principal book.

What do c/d and b/d mean?

c/d means carried down: the closing balance written on the lighter side. b/d means brought down: the same amount shown as the opening balance on the opposite side for the next period.

What does a debit balance in a personal account mean?

That person owes money to the business: he is a debtor. A credit balance means the business owes him: he is a creditor.