Accounting glossary
Ledger
A ledger is the record of every entry that affects one account in your books, such as a customer, a vendor, your bank, sales or rent, with a running balance. Together the ledgers hold all your transactions, sorted by what they are about.
Why it matters to your business
Almost every question about your business is a question for a ledger. How much does this customer owe? What did you spend on freight this year? Did the bank charge that fee twice? The ledger for that account answers it, with the document behind each entry.
Ledgers are also what you and the other side must agree on. When a customer says they have paid, you compare your ledger of their account with theirs, entry by entry.
How it works
Every transaction is entered once with equal debits and credits, and each side goes to a ledger. A credit sale of ₹11,800 with ₹1,800 GST touches three:
| Ledger | Debit | Credit |
|---|---|---|
| The customer | ₹11,800 | |
| Sales | ₹10,000 | |
| Output GST | ₹1,800 |
When the customer pays, the bank ledger is debited and the customer’s ledger is credited, bringing their balance to nil. The closing balances of all ledgers on a date make the trial balance.
Common mistakes
- Opening several ledgers for the same customer or vendor, so no single balance is right.
- Posting an expense to whichever ledger is nearest, which makes the profit and loss account useless for decisions.
- Not comparing ledgers with customers and vendors at least once a year.
Questions about Ledger
What is the difference between a ledger and a journal?
The journal lists entries in the order they happened. A ledger gathers the entries that concern one account. The same entry appears in both, so the journal answers what happened on a day and the ledger answers what happened with one customer, vendor or expense.
What is a customer ledger?
The account of one customer, showing each invoice, receipt and credit note with the balance they owe after it. It is what you send as a statement of account.
What are ledger groups?
Ledgers are arranged under groups such as sundry debtors, sundry creditors, bank accounts, direct expenses and indirect incomes. The groups decide where each ledger appears in the profit and loss account and the balance sheet.
What does a debit or a credit balance mean?
An asset or expense ledger normally has a debit balance, and a liability, capital or income ledger a credit balance. A customer with a credit balance has usually paid in advance.
Updated .