Lecture on Ledger Accounts (T-Accounts)

Introduction

• Understanding how to prepare ledger accounts (T accounts) from journal entries.
• Importance of ledger accounts in accounting.
• Pre-requisite: understanding of accounting basics, rules of debit and credit, and classification.
• Importance of subsidiary books.

Accounting Process

• Starts from source documents like invoices, bills, vouchers.
• Original recording is done in the journal, not a single book but multiple books (e.g., Cash Book, Purchases Book).
• Need to understand ledger before subsidiary books, as ledgers are necessary for posting entries.

What is a Ledger?

• A ledger is a book containing a group of T accounts.
• T accounts are known as ledger accounts.
• Debit side on the left, Credit side on the right.

Types of Ledgers

1. General Ledger
   • Contains all T accounts (purchases, sales, assets, etc.).
2. Debtors Ledger
   • Contains individual accounts for credit customers.
   • Helps in identifying how much each customer owes (e.g., Vijay's account).
3. Creditors Ledger
   • Contains individual accounts for suppliers.
   • Helps in identifying how much is owed to each supplier (e.g., Freddie's account).

Purpose of Ledger Accounts

• Summarizes individual transactions from journals and subsidiary books into single accounts.
• Facilitates preparation of trial balance and financial statements.
• Provides clarity on balances for specific accounts (e.g., supplier debts).

Ledger Account Format

• T-shaped with columns for Date, Particulars, Journal Folio (page number), and Amount.
• Debit and Credit sides for recording increases and decreases.

Posting to Ledger Accounts

• Process of transferring debits and credits from journals to ledger accounts is called posting.
• Each transaction affects at least two ledger accounts (dual entry system).
• Example: Transactions with a supplier like Freddie.

Types of Ledger Accounts

1. Asset Accounts
   • Examples: Furniture, Machinery.
   • Debit balance account.
   • Increase by debiting, decrease by crediting.
2. Expense Accounts
   • Examples: Rent, Depreciation.
   • Debit balance account.
   • Increase by debiting.
3. Liability Accounts
   • Examples: Creditors, Loans.
   • Credit balance account.
   • Increase by crediting, decrease by debiting.
4. Capital Accounts
   • Examples: Owner's equity.
   • Credit balance account.
5. Revenue Accounts
   • Examples: Sales, Service Income.
   • Credit balance account.

Balancing Ledger Accounts

• Process involves totaling debits and credits, finding shortfalls, and carrying down balances.
• Example calculations shown for Cash, Creditors, and Rent accounts.

Conclusion

• Ledger accounts are crucial for organizing transactions, summarizing accounts, and preparing financial statements.
• Next steps include practical problems for deeper understanding.