Advantages of Ledger Accounts Homework Answers
If you have just stepped into entrepreneurship or engaged in a start-up, you are well aware of the relevance of ledger posting. Ledger posting is the first step to record business accounting. Our blog aims to find out the advantages of ledger accountsÂ homework answers.
Journal entries, cashbook entries or subsidiary books are first posted on ledger accounts from where they are transferred to P&L ac and Balance sheet. This process forms the core of accounting business.
Examples of general ledger
- Service fee revenues
- Salaries account
- Expense account
- Rent and interest expense
- Loss on disposal of assets and advertising expense
- Accounts receivable
- Cash expense
- Investment Equipment
- Accounts payable
- Accrued expense payable
- Customer deposits
Why is ledger accounts a necessity?
Knowing the significance of general ledger will help you with advantages of ledger accountsÂ homework answers:
- You maintain separate accounts for different parties under various heads. For example, you want to check out all the transaction carried out with vendor cum client A. You have to record all transactions pertaining to purchase, sales, cash, bills receivable and bills payable under said heads as ledger posting and transfer them to Aâ€™s account to make things simpler.
- Necessary information found at one place instead of scouring through various accounts. Aâ€™s account reveals all data related to bills receivable, payable, purchase, return, investment,
- Ledger posting helps preparation of trial balance which enables an accountant identify and rectify mistakes if made. Trial balance ensures maximum arithmetical accuracy in preparation of P&L account.
- Ledger accounts are first step towards preparing balance sheet with proper accuracy. You get an opportunity to identify and rectify the adjustments made in balance sheet and create suspense account to incorporate changes.
Types of ledger prepared
You will find more than one ways to prepare ledger accounts however the most popular among them is a T-shaped ledger. Advantages of ledger accountsÂ homework answers identify that T-shaped ledger posting is classified into debit and credit side. Left side goes to post debit part as dr. and the right side is dedicated exclusively for the credit part i.e. cr.
Below given are contents of a specimen ledger.
- Date dr.
- Particular known as journal entry
- Journal folio number
- Amount (in respective currency)
- Date cr.
- Journal folio number
- Amount (in respective currency)
Thumb- rule for posting entries in general ledger
This is a universal rule followed across the world. Post advance of digitalization of economy various software and ERP system does the necessary posting. Junior accountants were assigned with the task of posting ledger accounts previously before software were put in place.
General ledger entry & other forms of accounting forms basis of various accounting software and ERP and an accountant needs to possess a sound knowledge of the system in order to work on them.
- Ensure opening of the ledger account
- Make postings on debit side and credit the opposite side. For example, if you pay cash to vendor A, the entry will look like
Cash account drâ€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦(amount in your currency)
To vendor Aâ€¦â€¦â€¦â€¦â€¦â€¦(amount in your currency)
Ledger account balancing act
You have to close ledger account post journal entries are made into the book to ascertain gains and losses of the business at the end of an accounting period. Say, for example, we close ledger postings for one-quarter only to start off afresh in next quarter. You take forward the balancing figure at the end of every quarter to prepare income statement and balance sheet at the end of financial year.
Based on company rule, ledger accounts can be closed monthly, quarterly or on a half-yearly basis.
Closing of ledger accounts is done after we tally the debit and credit side to identify profit and loss for the given period. Advantages of ledger accountsÂ homework answers go on to evaluate the findings
Lack of balancing in sides:
What happens if debit side is greater than the credit side in the ledger book of accounts?
- It signifies debit amount greater than the total credit thereby leading to an excess debit balance as per accounts terminology. The excess debit is carried forward to the next period, and the ledger is closed for the said period. The excess debit will directly reflect in the income statement at the end of the financial year. The balancing figure for the excess debit is brought down in the ledger.
- Similarly, the credit side of an accounts ledger can exceed the debit side in all probabilities. As per accounts terminology, we say there is an excess credit balance. The excess credit balance enters the debit side as â€˜to balance c/d, â€™ and the ledger is closed. The next period ledger is opened when the balancing figure is brought down as â€˜by balance b/d.’
Different treatment is meted out to excess debit and credit based on the rules of posting and closure.
Advantages of ledger accountsÂ homework answers the assessment process
Entire process of accounting and all the books starting from journal entries to final balance sheet is inter-linked. Ledger accounts serve as the links between all thereby influencing both assets as well as liabilities. You can assess expense and losses with the help of ledger postings much before preparing the final balance sheet or P&L accounts.
- You have to mention date, description and balance in your ledger postings by rule of thumb
- You can categorize ledger postings into seven broad databases including liabilities, assets, equity value of the corporation in case it’s publicly funded, general expense, losses, gains and revenue earnings.
- Some of the general categories are again classified as cash, accounts payable and accounts receivable.
Time for you to seek help from such authentic sources!