Preparing the Ledger : Posting

... From Page 16

Journal is a means. It is not the end to be achieved

 
 
The target with which we had been carrying out all this exercise of building the journal in a specific format is to collect all the information relating to an element at a single place.

» Does the Journal take us to the Target?

The Journal does not take us there.

By preparing the journal what we have done is to write a statement in a particular format debiting an account and crediting another account.

This would give us a list of journal entries in place of the transactions.

If we stop with preparing the journal and if we are to find the information relating to an element we have to conduct a heavy exercise, similar to the one that we conducted when there were no accounting records.

» Ascertaining the Net amount due to or due from Mr. Shyam Rao

To ascertain the amount due from or due to a particular person (an element in accounting)
  • We have to start from the beginning and mark all the entries where the element/account head regarding which we need information is either debited or credited.
  • Then we need to collect all the debits at a place and all the credits at another.
  • Then we need to add up all the debit amounts and all the credit amounts separately.
  • Then we need to set off the total of debits against the total of credits to ascertain the remaining balance.
    [Debit and credit are acts of opposing nature.]

Debits (Benefit Received by him)
DateS. NoAmount
2005 June 10th04.45
11th09.25
12th02.102
.........
.........
2005, Dec 8th06.76
10th05.56
Total amount Rs. 8,125
Credits (Benefit/Amounts Received by us)
DateS. NoAmount
2005, June 11th05.50
12th11.75
14th15.25
.........
.........
2005, Dec 6th12.125
8th05.55
Total amount Rs. 8,006

This would give us the required information relating to the element Mr. Shyam Rao.

» Net Balance

Since debits and credits are acts of opposing nature, we can set off the two totals and obtain the net balance. Here it is Rs. 119 debit (Rs. 8,125 debit − Rs. 8,006 credit).

We can say that Mr. Shyam Rao, has received a net benefit of Rs. 119 (since we debit his account when he receives a benefit from us) which implies he is still due to us to the extent of Rs.

Set Off » To obtain the Net information

 
 
Debit amounts and Credit amounts are amounts of opposing nature.

Setoff implies adjusting the amounts of opposing nature against each other. It is like adding up a negative and a positive amount.

It would be appropriate assuming the smaller amount being setoff against the larger amount. The balance left would always be related to the larger amount. The amount of balance is the difference between the two amounts being set off. [In the above example, setting off the total credit amount of Rs. 8,006 and total debit amount of Rs. 8,125 we get a net debit of Rs. 119.]

Eg: If a debit amount of Rs. 5,00,000 and a credit amount of Rs. 4,00,000 are being set off, we need to think that the credit amount of Rs. 4,00,000 is being setoff from the debit amount of Rs. 5,00,000.

The amount left after set off would be Rs. 1,00,000 (Rs. 5,00,000 − Rs. 4,00,000) of debit amount.

LEDGER » information relating to an element at a single place

 
 
The journal in itself does not collect the information relating to an element at a single place. But it enables the preparation of another record called the ledger which provides all the information relating to an element at a single place.

Each element in the organisational accounting system has a unique identity in the ledger record. A LEDGER as a record is a book with each element or Account Head having its own allotted place. Thus each element is also called a LEDGER Account.

• Ledger » Ledger Account

A Ledger Account is related to a single accounting head. It contains all the information relating to an element.

A Ledger is a book that contains all the Ledger Accounts within an organisational accounting system. It is only a collection of ledger accounts.

• No Journal » No Ledger

A ledger account is a derivative. It has no independent exisence. It is derived from the journal. The Ledger is prepared by carrying the information in the journal to it. Thus, the information in the ledger comes from the journal. There is no other way a Ledger Account can be prepared. Therefore we say "No Journal No Ledger".

• No Journal » No Accounting

At the starting stage, we learnt that the target to be achieved through this method being adopted for writing the journal is to collect all the information relating to an element at a single place. Accomplishing that target is achieved by preparing the LEDGER. Thus we can say that the target to be achieved is preparation of the LEDGER.

Since a Ledger cannot be prepared without the journal, we cannot achieve the target without the Journal. Thus, we can say "No Journal No Accounting"

Writing the Ledger » Posting

 
 
The task of writing up the ledger based on the entries in the Journal is called POSTING. We Post information into the Ledger.

• Posting

Meaning » Cause to be directed or transmitted to another place
Synonyms » putup, send

Once a Journal is prepared, posting would involve just copying the information into the ledger.

• Journal :: Recording » Ledger :: Posting

The act of writing down the journal is called recording and the act of writing down the ledger is called posting. The nature and the activity involved in the two acts is different. Preparing the Journal involves analysis of the transaction using some proof of a business transaction. Preparing the ledger involves just copying the information in a specified manner and format.

We should be able to identify the intended book/record, based on the term in use.

  • Recording ⇒ Writing in the Journal and
  • Posting ⇒ Writing in the ledger.

• Mechanised/Computerised Accounting

It was possible to mechanise/automise the preparation of the ledger, since the information in the ledger is derived from the Journal. In computerised accounting, once a Journal entry is recorded, the ledger posting is accomplished automatically without any manual effort.

Format of the Ledger Account

 
 
A ledger account has a format which in its simplest form is known as the "T" Format as it looks like a large "T".
DrAccount HeadCr
Debit Side Credit Side

» Debit & Credit Sides

The total space is divided into two equal sides. One on the left called the "Debit Side" of the account and the other on the right called the "Credit Side" of the account.

» Header

The row just above the "T" is the header for the Ledger Account. It carries the words "Dr" (read debit) to the left most end and "Cr" (read credit) to the right most end. The name of the account head (element name) whose data/information is present in that ledger account, is written in the center.

» Sub Divisions of a Side

Each side of the ledger account is further sub divided into four columns – Date, Particulars, J/F and Amount. Both the sides of the account look similar and the account looks symmetrical about the center.

A ledger account with headings for columns and no data in it would look as below:

DrCash a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
   

           
               

Writing & Reading a Ledger Posting

 
 
Based on the Dual Entity Concept, we can say that every transaction has its effect on two elements. Each element or Ledger Account has its own place in the Ledger. Thus each transaction has its effect in two places in the ledger.

In other terms, each transaction effects two ledger accounts. For the purpose of journalising, we analyse the transaction and identify the two elements effected, which one is to be debited and which one is to be credited.

Preparing the ledger implies posting the information to the two Ledger Accounts (elements/account heads) effected by the transaction. Ledger posting can be understood from the manner in which a journal entry is read.

• Reading the Journal entry

Consider the following journal transaction and its journal entry

June 15th: Bought Furniture for cash Rs. 12,000.
Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 15th Dr
12,000
12,000

The detail relating to each transaction (called a Journal entry) can be read in two different ways.

• Normal Order

Furniture a/c "Debtor (pronounced detor) To" Cash a/c.
      [Begin reading with the debited account]

• Reverse Order

Cash a/c "Credited By" Furniture a/c.
[Begin reading with the credited account]

» Order of Reading helps posting

The two accounts involved in the transaction are "Furniture a/c" and "Cash a/c". Thus, the information in the Journal entry is to be posted into these two accounts.

There are two orders of reading, each of which can be related to one of the postings to be made.

In the above example, to post the entry into

  1. "Furniture a/c", read the journal entry starting with "Furniture a/c", which is the normal order

    Furniture a/c debtor (read detor) "To Cash a/c."

    The account other than the account being dealt with here is "Cash a/c" and it is prefixed by "To". This is written on the debit side of the Furniture a/c.

  2. "Cash a/c", read the journal entry starting with "Cash a/c", which is the reverse order

    Cash a/c credited "By Furniture a/c"
    The account other than the account being dealt with here is "Furniture a/c" and it is prefixed by "By". This is written on the credit side of the Cash a/c.

The date of the transaction and the amount of the transaction are also recorded on the same side in the relevant columns, taking the information from the journal. The Ledger accounts with all the information filled would look as below:
DrFurniture a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
15/05/05 To Cash a/c 12,000    

   
               

DrCash a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
   

      By Furniture a/c 12,000
               

Information in the Ledger

 
 

» Date : Transaction date

Since the data in the journal is brought into the ledger, the date here is the date of the transaction as recorded in the journal.

» Particulars : Account Head

Every accounting transaction has its effect on two elements (Dual Entity Concept). Thus, when an account is affected, there will always be a second account that is affected along with it.

The account head that appears in the particulars column is the account (other than the one represented by the Ledger Account) that is affected in the transaction whose data is being posted here.

» J/F : Journal Folio

The page number of the Journal Record/Book where the transaction which is being posted here appears. This serves as a reference to go back to the Journal if needed.

» Amount

The amount of the transaction.

One Element » One Ledger Account

 
 
All the information relating to an account is posted into the same account whatever may be the number of journal entries in which it appears. Each time the account is affected, it is either debited or credited based on the transaction.

» An account with a number of postings

DrCash a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)
15/06/05
19/06/05
24/06/05
24/06/05
To Capital a/c
To Goods/Stock a/c
To Mr. Natekar a/c
To Commission
      Received a/c




2,00,000
12,000
2,000

500
17/06/05
17/06/05
18/06/05
18/06/05
21/06/05
By Furniture a/c
By Rent Paid a/c
By Bank a/c
By Goods/Stock a/c
By Wages Paid a/c




20,000
5,000
1,50,000
10,000
5,000
               
               

Writing the Journal from the Ledger !!

 
 

The journal is a book of prime entry. It is the first and important book that is written in accounting. The information in the ledger flows from the journal and therefore we cannot think of the ledger without the journal.

In many problem solving tasks we straight away prepare the ledger. Because we are preparing the ledger directly we cannot say that we can prepare it without the journal. What we do is assume the presence of the journal and prepare the ledger directly.

You may find it easy preparing the ledger directly. If you are required to prepare the journal in such situations, you may write back the journal based on the ledger.

Read the postings and you get the journal entries from which these postings have been made.

  • Normal Entry » June 15th : Cash a/c debtor To Capital a/c
  • Reverse Entry » June 17th : Cash a/c credited By Furniture a/c ⇒ Furniture a/c debtor To Cash a/c.

Students are advised to practice reading the journal starting with both the debited account as well as the credited account.

Double Entry System of Accounting

 
 
The process of accounting that we are dealing with is called the "Double Entry System of Accounting".

This is called so, based on the dual entity concept -"Every transaction has its effect on two accounts/elements".

One another interpretation being Every transaction has its effect on two Ledger Accounts i.e. it has got two entries in the ledger.

This is the accounting system that is predominantly in use in most parts of the world.

Author Credit : The Edifier ... Continued Page 18

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