All the accounts identified on the basis of transactions recorded in different journals/books such as Cash Book, Purchase Book, Sales Book etc. will be opened and maintained in a separate book called Ledger. So a ledger is a book of account; in which all types of accounts relating to assets, liabilities, capital, expenses and revenues are maintained. It is a complete set of accounts of a business enterprise.
Features of ledger
1) Ledger is an account book that contains various accounts to which various business transactions of a business enterprise are posted.
2) It is a book of final entry because the transactions that are first entered in the journal or special purpose Books are finally posted in the ledger. It is also called the Principal Book of Accounts.
3) In the ledger all types of accounts relating to assets, liabilities, capital, revenue and expenses are maintained.
4) It is a permanent record of business transactions classified into relevant Accounts.
5) It is the ‘reference book of accounting system and is used to classify and summarise transactions to facilitate the preparation of financial Statements.
Format of a ledger sheet
Importance of Ledger
Ledger is an important book of Account. It contains all the accounts in which all the business transactions of a business enterprise are classified. At the end of the accounting period, each account will contain the entire information of all the transactions relating to it. Following are the advantages of ledger.
1)Knowledge of Business results
Ledger provides detailed information about revenues and expenses at one place. While finding out business results the revenue and expenses are matched with each other.
2) Knowledge of book value of assets
Ledger records every asset separately. Hence, you can get the information about the Book value of any asset whenever you need.
3) Useful for management
The information given in different ledger accounts will help the management in preparing budgets. It also helps the management in keeping the check on the performance of business it is managing.
4) Knowledge of Financial Position
Ledger provides information about assets and liabilities of the business. From this we can judge the financial position and health of the business.
5) Instant Information
The business always need to know what it owes to others and what the others owe to it. The ledger accounts provide this information at a glance through the account receivables and payables.