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". Dr Account Head Cr 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: Dr Cash a/c Cr 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. Particulars L/F Debit Amount (in Rs) Credit Amount (in Rs) June 15th – Furniture a/c       To Cash a/c [ Being the amount paid towards Furniture purchased from M/s ____ vide bill no:___ dated:__ ] 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 "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. "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: Dr Furniture a/c Cr Date Particulars J/F Amount (in Rs) Date Particulars J/F Amount (in Rs) 15/05/05 To Cash a/c – 12,000                         Dr Cash a/c Cr 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 Dr Cash a/c Cr 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

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