Concept of Ledger creation

Ledger is the books of accounts in which recorded transaction in the journal get classified to give total amount in each account.

Journal records transaction in the chronological order but owner is interested more to know the total amount in each accounts. Suppose, take cash account—in journal book there will be a lot of transaction relating to cash but owner or any user of financial statement would wants to know total or net amount in cash accounts to understand his financial position after doing those transaction so that he can take decision accordingly, not only cash account but ledger represents detail record of major changes happens asset, liability, income and expenses; thus, this creates reason for creation of ledger books.

Now look at the following examples to understand the concept practically:

 Suppose an owner introduces 100000 in the business. He will pass journal entry:

Cash a/c      Dr 100000

  To capital a/c         100000

(Being introduced cash into the business)

 From this money He purchased goods worth Rs 70000 entry would be:

Purchase a/c           Dr 70000

 To cash a/c                       70000

(Being goods purchased in cash)

Now He spent 5000 for advertisement entry would be:

Advertisement a/c           Dr 5000

  To cash a/c                               5000

(Being advertisement expenditure paid)

At last he sold goods all goods at 100000, entry would be:

Cash a/c                         Dr 100000

  To sales a/c                            100000

(Being goods sold on cash)

Now if that owner wants to know or look at the cash position of the business it would be difficult for him to get it just from Journal thus, it forces him to draw a ledger of cash account like this:

Dr			Cash Account		Cr
Date	Particular	Amount	Date	particular	Amount
1/1/2014	To Capital a/c	100000	15	By purchase a/c	70000
	TO sales ac	100000		By advertisement a/c	5000
				By balance c/d	125000
		200000			200000

After posting transactions of cash account in ledger he got to know that he has Rs125000 more cash remaining in his books similarly he can get financial position of other accounts just by posting transactions in the ledger. This shows the importance of creating ledgers.

This was how I explained ledger. If you have any queries regarding this concepts, feel free to write on the comment box below.