Finance Basics

Introduction to Accounting
Need for Accounting
Meaning of Accounting
Attributes of Accounting
Branches of Accounting
Users of Accounting Information
Accounting Cycle
Accounting Equation
Introduction and Meaning
Effects of Business Transactions on Accounting Equation
Purchase of an asset of credit
Rules of Accounting Equation

Finance Basics
Double Entry System
Types of Accounting
Rules of the Double Entry System (Debit and Credit)
Advantage of Double Entry System
Journal
Meaning of Journal
Objectives of Journal
Rules of Journalizing
Miscellaneous Journal Entries
Finance Basics
Ledger
Trial Balance
Cash Book

Finance Basics
Ledger
Meaning of Ledger
Ledger is the principal book of accounts. It
contains all the accounts of a business whether
real, personal or nominal. It is also called the
book of final entry.
A ledger may be defined as a summary statement
of all transactions relating to a person, asset,
expense or income which have taken place
during a given period of time and shows their net
effect.

Finance Basics
Ledger
Ledger posting
The following example will make the process of
posting clear:
JOURNAL
Date Particulars
L.F.
Debit
(SAR)
Credit
(SAR)
2010
April 1
Ramys a/c Dr.
To Sales a/c
(Being goods sold on credit)
2000


2000
Finance Basics
Ledger
Ledger posting
Ledger (Ramys Account)





Ledger (Sales Account)

Date Particulars Amount Date Particulars Amount
2010
April 1
To Sales a/c
2000



Date Particulars Amount Date Particulars Amount
2010
April 1
By Ramys a/c

2000
Finance Basics
Ledger
Ledger posting (More example)
Ledger (Cash Account)






Date Particulars Amount Date Particulars Amount
Jan 1
Jan 5
Jan 16
Jan 25

To Capital a/c
To Sales a/c
To Sales a/c
To Badr & Co.
10,000
1,700
650
2,850


Jan 3
Jan 4
Jan 7
Jan 26
Jan 31
Jan 31
By Furniture a/c
By Purchase a/c
By tele rent a/c
By bank a/c
By Salaries a/c
By Balance a/c
900
4,000
400
2,500
600
6,800
15,200 15,200
Feb 1
To Balance b/d
6,800
Finance Basics
Ledger
Ledger posting (More example)
Ledger (Sales Account)






Date Particulars Amount Date Particulars Amount
Jan 31


To Balance c/d

5,250



Jan 1
Jan 5
Jan 16

By Badr & Co.
By Cash a/c
By Cash a/c

2,900
1,700
650

5,250 5,250


Feb 1 By Balance b/d 5,250
Finance Basics
Ledger
Difference between Journal and Ledger



Journal Ledger
1. Nature It is the book of first
entry
It is the book of secondary
entry.
2. Record This is the book of
chronological record
The ledger is an analytical
record
3. Datewise Entries are mad
datewise
Postings are made
accountwise
4. Permanency This is only the
original record and
not a permanent
record
This is a permanent
record of various accounts
Finance Basics
Ledger
Difference between Journal and Ledger



Journal Ledger
5. Processing The process of
journal entries is
known as journalizing
The process is knows as
posting
6. Narration The narration is given
after every entry.
The narration is not given.
7. Folio Folio of journal is
written
Ledger folio is written
8. Basis in final
accounts
Final accounts cannot
be prepared directly
from journal
Ledger is the basis of
preparing the final
accounts
9. Balancing Journal is not
balanced
Every account is balanced
Finance Basics
Ledger
Advantages of Ledger
This is an important book of a business. It records the
summary of all the transactions effected in a specific period.
The following are the advantages of ledger:
1. Knowledge of assets: Leger records each and every
asset separately; hence, it can readily give the
knowledge of present value of asset.
2. Knowledge of purchases and sales: It can give a clear
picture of purchases and sales.
3. Knowledge of profit and loss: Ledgers are the basis of
profit and loss account. No business result can be
known unless we prepare the profit and loss account.
Finance Basics
Ledger
Advantages of Ledger
4. Arithmetical accuracy: Ledgers are helpful for preparing
the trial balance. If in a trial balance both debit and
credit sides are equal, then it is evident that the ledger
balances are correctly carried forward. Thus, it is a
check of arithmetical accuracy.
5. Knowledge of income and expenditure: In ledger, a
separate account of income and expenditure is kept
which can tell us how much is spent on each item.
6. Helpful in preparing balance sheet: Various ledger
balances are carried to the trial balance, which is the
basis of the balance sheet.
Finance Basics
Ledger
Questions
Choose the correct answer
1. Ledger is a set of:
a) balances
b) accounts
c) rules
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
1. Ledger is a set of:
a) balances
b) accounts
c) rules
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
2. Assets always have .. balances:
a) debit
b) credit
c) Both debit and credit
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
2. Assets always have .. balances:
a) debit
b) credit
c) Both debit and credit
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
3. If the total of debit side of an account is higher than
total of credit side, it is called balance:
a) debit
b) Credit
c) debit or credit
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
3. If the total of debit side of an account is higher than
total of credit side, it is called balance:
a) debit
b) Credit
c) debit or credit
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
4. . Is the principal book of accounts.
a) Ledger
b) Journal
c) Trial balance
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
4. . Is the principal book of accounts.
a) Ledger
b) Journal
c) Trial balance
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
5. The process of transferring entries from journal to
ledger is called...
a) balancing
b) posting
c) recording
d) None of these

Finance Basics
Ledger
Questions
Choose the correct answer
5. The process of transferring entries from journal to
ledger is called...
a) balancing
b) posting
c) recording
d) None of these