What is a Ledger?

In accounting, a ledger is a principal book or record where financial transactions are summarized, classified, and posted from the journal entries. It acts as a central repository for all accounts maintained by a business, providing a detailed account of each transaction’s impact on specific accounts. The ledger plays a crucial role in the accounting process, serving as a fundamental tool for organizing, summarizing, and presenting financial information, facilitating accurate financial reporting, and supporting decision-making by management, investors, and other stakeholders.

Key Characteristics of Ledger:

• Classification of Accounts: Accounts in the ledger are organized and classified into various categories, such as assets, liabilities, equity, revenue, and expenses, based on the nature of the transactions they represent.
• Posting from Journals: Transactions recorded in the journal are transferred or posted to the appropriate accounts in the ledger. Each transaction affects at least two accounts, with corresponding debits and credits recorded to maintain the balance of the accounting equation.
• Running Balance: Ledger accounts maintain a running balance, showing the cumulative effect of all transactions on each account over time. Debits and credits are added or subtracted from the previous balance to calculate the current balance.

Journal and Ledger are two main aspects of accounting when it comes to recording of transactions. There exist many differences between journals and ledgers, which are covered in this article. A journal records transactions chronologically as they occur, while a ledger summarizes and organizes these transactions by account.