What is a Ledger?
A ledger is a book or collection of accounts where transactions are recorded. In today's accounting systems, ledgers are typically computerised, but the concept remains the same: to organise financial information by account.
Types of Ledgers
| Ledger Type | Description |
|---|---|
| General Ledger | The main accounting record containing all accounts used by the business |
| Subsidiary Ledgers | Detailed records supporting specific general ledger accounts |
| Sales Ledger | Records all sales made on credit and tracks customer balances (Trade Receivables) |
| Purchase Ledger | Records all purchases made on credit and tracks supplier balances (Trade Payables) |
| Cash Book | Records all cash receipts and payments |
The Accounting Cycle
The ledger is a central component in the accounting cycle:
1. Transactions
Business events with financial impact
2. Journal Entries
Record debits and credits for each transaction
3. Posting
Transfer information to ledger accounts
4. Trial Balance
List all accounts with their balances
5. Financial Statements
Prepare reports from ledger information
Journalising vs. Posting
These are two distinct but related processes in recording transactions:
| Journalising | Posting |
|---|---|
| Recording transactions in a journal | Transferring journal entries to the ledger |
| Chronological order | Organised by account |
| First step in recording | Second step in recording |
| Book of original entry | Book of final entry |
Example: From Journal to Ledger
Journal Entry: Purchase equipment for £5,000 in cash on 6 June 2025.
| Date | Account | Debit | Credit |
|---|---|---|---|
| 06/06/2025 | Equipment | £5,000 | |
| Cash | £5,000 |
Posting to Ledger:
Trial Balance
After all transactions are posted to the ledger, a trial balance is prepared to ensure that the total debits equal the total credits.
Simple Trial Balance as of June 30, 2025:
| Account | Debit | Credit |
|---|---|---|
| Cash | £8,000 | |
| Trade Receivables | £12,000 | |
| Equipment | £25,000 | |
| Trade Payables | £7,500 | |
| Loans Payable | £15,000 | |
| Owner's Capital | £20,000 | |
| Service Revenue | £18,000 | |
| Rent Expense | £3,500 | |
| Utilities Expense | £2,000 | |
| Wages Expense | £10,000 | |
| Total | £60,500 | £60,500 |
Modern Ledgers
Today's computerised accounting systems automatically:
- Post journal entries to the appropriate ledger accounts
- Calculate account balances in real-time
- Generate trial balances on demand
- Produce financial statements directly from ledger data