What is a Ledger?
A ledger is the central book of final entry in accounting where every financial transaction is recorded by account. Think of it as the organized filing cabinet: each drawer (account) stores all debits and credits related to that topic — cash, sales, expenses, capital, and so on. The ledger is the source used to prepare trial balances, financial statements and to reconcile balances.
Ledger format — the structure
Ledgers are usually presented either as T-accounts or columnar (two-column or multi-column) formats. The key elements are:
- Account title — the name (e.g., Cash, Accounts Receivable).
- Date — when the transaction was posted to the ledger.
- Details / Reference — brief description or voucher number to trace original entry.
- Debit and Credit columns — amounts increase/decrease per accounting rules.
- Running balance — optional column showing the current balance after each post.
Modern ledgers in software typically show a running balance and link to journal entries, but the conceptual format is identical to the classic paper ledger.
Worked example (Sales & Cash)
Below is a simple example showing how a few journal entries are posted to the Cash and Sales ledgers and how we compute balances.
| Date | Account / Details | Debit | Credit | Balance |
|---|---|---|---|---|
| 2025-09-01 | Opening balance — Cash | 5,000.00 | — | 5,000.00 |
| 2025-09-03 | Sales — Invoice #1001 (cash) | 750.00 | — | 5,750.00 |
| 2025-09-05 | Purchase supplies (paid) | — | 200.00 | 5,550.00 |
| 2025-09-08 | Customer refund | — | 50.00 | 5,500.00 |
In this Cash ledger the debit column increases cash (asset) and the credit column decreases it. The running balance shows the current cash position after each posting.
Balancing of accounts
Balancing an account means calculating the difference between total debits and credits to find the ending balance. For asset and expense accounts, debits normally have a positive balance; for liabilities, equity and revenue accounts, credits normally have a positive balance. Balancing is the step that leads to the Trial Balance.
Quick balance calculation (Cash example):
- Add up all debits: 5,000 + 750 = 5,750.
- Add up all credits: 200 + 50 = 250.
- Ending balance = Debits − Credits = 5,750 − 250 = 5,500 (Debit balance).
When preparing a trial balance, place each account’s balance in the debit or credit column according to its natural side. The two columns should total equally — that is the essence of double-entry accounting: every debit has an equal and opposite credit.
Practical tips & common mistakes
- Always cross-reference ledger postings to original journal entries and source documents.
- Use descriptive references (invoice numbers, dates) to make tracing simpler.
- Watch signs: mis-placing a debit as a credit is the most common balancing error.
- Reconcile bank and subsidiary ledgers regularly to catch timing differences and errors early.
A well-kept ledger is the backbone of accurate financial reporting. Once you can post, balance and reconcile, you’re ready to prepare trial balances and financial statements with confidence.