Meaning and Nature of the Ledger

Every transaction a business enters into is first recorded, in the order it occurs, in the Journal — but a journal entry alone cannot tell an owner how much cash the business has, how much a particular customer still owes, or what the total purchases for the month have been. For that, the transactions relating to EACH account must be brought together, account by account, in one place. That is exactly what the Ledger does, and it is why the Ledger is often called the most important book in the whole accounting system.

The Journal records transactions in the order they happen (chronologically) — it is called the book of original entry or the book of prime entry. The Ledger, by contrast, collects transactions by ACCOUNT rather than by date — every transaction that has already been journalised is transferred (posted) into the particular account it relates to. Because it is prepared FROM the journal, and not directly from the original transaction, the Ledger is called the book of secondary entry. Because it is also where the final, classified and balanced picture of each account becomes available, it is equally called the book of final entry.

The Ledger contains a separate account for every person, asset, liability, expense, and item of income the business deals with — a Cash Account, a Capital Account, a Furniture Account, a Rent Account, an account for each debtor and each creditor, and so on. The set of all these accounts, taken together, constitutes the Ledger. MSBSHSE's Std XI Book-Keeping and Accountancy syllabus places the Ledger directly after the Journal for exactly this reason — the Journal supplies the raw, date-wise data, and the Ledger reorganises it into the account-wise form every later stage of accounting (Trial Balance, Trading and Profit and Loss Account, Balance Sheet) actually needs.

Why the Ledger matters

• It shows, for any account, the NET result of all transactions affecting it — for example, exactly how much cash is on hand, or exactly how much a debtor still owes, at a glance, instead of scanning through every journal entry involving that account.
• It is the basis on which the Trial Balance — and, through it, the final accounts of the business — is prepared.
• Because every account collects together everything that has ever happened to it, the Ledger is sometimes described as the "King of all books of account," with the Journal serving as its minister.