Ledger Account: Format, Posting Rules & Examples

Ledger Account: Complete Guide with Format, Posting Rules & Examples

After recording transactions in the journal, the next step is posting them to ledger accounts. The ledger is where accounting truly comes alive—it's the permanent home for every financial transaction your business makes.

Whether you're a Class 12 commerce student, ACCA FIA candidate, or small business owner, understanding ledger accounts is essential. This guide explains everything with practical examples and step-by-step instructions.

What is a Ledger Account?

A ledger account is a record that contains all transactions related to a specific account. It shows the complete history of increases and decreases in that account over time.

Think of it as a personal file for each account. Your cash account has its own ledger. Your sales account has its own ledger. Every supplier, customer, expense, and asset gets its own dedicated record.

Simple Definition

A ledger account is a summary record that collects all debit and credit entries from the journal for a particular account, showing its running balance.

Why is it Called a "Ledger"?

The word "ledger" comes from the Dutch word "legger," meaning to lie or lay down. Historically, accountants would lay down their record books flat to write in them. The name stuck, and today we still call these permanent records ledgers.

Difference Between Journal and Ledger

Many students confuse journals and ledgers. Here's a clear comparison:

The journal is where you first record transactions. The ledger is where you organize them by account. Both work together under the double entry system to maintain accurate financial records.

Types of Ledger Accounts

Ledger accounts are classified into three main types based on the golden rules of accounting:

1. Personal Accounts

These accounts relate to persons, firms, or organizations.

Examples:

• Debtors (Customers who owe you money)
• Creditors (Suppliers you owe money to)
• Capital Account
• Drawings Account
• Bank Account

Rule: Debit the receiver, Credit the giver

2. Real Accounts

These accounts relate to assets—things the business owns.

Examples:

• Cash Account
• Machinery Account
• Building Account
• Furniture Account
• Inventory Account

Rule: Debit what comes in, Credit what goes out

3. Nominal Accounts

These accounts relate to expenses, incomes, gains, and losses.

Examples:

• Salary Account
• Rent Account
• Sales Account
• Commission Received Account
• Interest Expense Account

Rule: Debit all expenses and losses, Credit all incomes and gains

Understanding these classifications helps you apply the correct journal entry rules when posting to ledgers.

Ledger Account Format (T-Account)

The most common ledger format is the T-Account, named for its T-shape. Here's the standard structure:

                    Account Name
    ─────────────────────────────────────────
    Dr. (Debit Side)     |    Cr. (Credit Side)
    ─────────────────────────────────────────
    Date | Particulars | Amount | Date | Particulars | Amount
    ────────────────────────────────────────

Detailed T-Account Format

What Each Column Means

The debit side is always on the left. The credit side is always on the right. This never changes.

How to Post from Journal to Ledger

Posting is the process of transferring entries from the journal to the ledger. Follow these steps:

Step 1: Identify the Accounts

Look at the journal entry and identify which accounts are affected.

Example Journal Entry:

Accounts affected: Cash Account and Sales Account

Step 2: Post the Debit Entry

Open the Cash Account ledger. Enter the amount on the debit (left) side. In the particulars column, write "To Sales A/c" (the account that was credited).

Step 3: Post the Credit Entry

Open the Sales Account ledger. Enter the amount on the credit (right) side. In the particulars column, write "By Cash A/c" (the account that was debited).

Step 4: Add the Date

Enter the transaction date in both ledger accounts.

Posting Result

Cash Account

Sales Account

Rules for Ledger Posting

Rule 1: Debit Goes to Debit Side

When an account is debited in the journal, post it to the debit (left) side of that account's ledger.

Rule 2: Credit Goes to Credit Side

When an account is credited in the journal, post it to the credit (right) side of that account's ledger.

Rule 3: Use "To" for Credit Entries

On the debit side, write "To [Account Name]" in the particulars column.

Rule 4: Use "By" for Debit Entries

On the credit side, write "By [Account Name]" in the particulars column.

Rule 5: One Entry Creates Two Postings

Every journal entry requires posting to at least two ledger accounts—one debit and one credit. This maintains the double entry system balance.

Ledger Account Examples (Step-by-Step)

Let's work through complete examples from journal to ledger:

Example 1: Cash Purchase of Goods

Transaction: Purchased goods worth ₹25,000 for cash.

Journal Entry:

Ledger Posting:

Purchases Account

Cash Account

Example 2: Credit Sale to Customer

Transaction: Sold goods worth ₹40,000 to Sharma Traders on credit.

Journal Entry:

Ledger Posting:

Sharma Traders Account

Sales Account

Example 3: Payment of Salary

Transaction: Paid salary ₹15,000 by cheque.

Journal Entry:

Ledger Posting:

Salary Account

Bank Account

Example 4: Receipt from Debtor

Transaction: Received ₹30,000 from customer Gupta & Sons.

Journal Entry:

Ledger Posting:

Cash Account

Gupta & Sons Account

Example 5: Depreciation Entry

Transaction: Recorded depreciation of ₹8,000 on machinery.

Journal Entry:

This follows the same posting rules. Understanding depreciation methods helps you calculate the correct amount before posting.

How to Balance a Ledger Account

Balancing means finding the difference between the debit and credit sides. Here's how:

Step 1: Total Both Sides

Add up all amounts on the debit side. Add up all amounts on the credit side.

Step 2: Find the Difference

Subtract the smaller total from the larger total.

Step 3: Enter the Balance

If the debit side is larger, enter the difference on the credit side as "By Balance c/d" (carried down).

If the credit side is larger, enter the difference on the debit side as "To Balance c/d."

Step 4: Rule Off and Bring Down

Draw a line under both columns. In the next period, enter the opening balance on the opposite side as "To Balance b/d" or "By Balance b/d" (brought down).

Balancing Example

Cash Account (March Transactions)

The closing balance of ₹1,05,000 is carried to April as the opening balance.

Types of Balances

Debit Balance

When the debit side total exceeds the credit side total, the account has a debit balance.

Accounts with debit balances:

• Asset accounts (Cash, Bank, Inventory, Equipment)
• Expense accounts (Salary, Rent, Utilities)
• Drawings account

Credit Balance

When the credit side total exceeds the debit side total, the account has a credit balance.

Accounts with credit balances:

• Liability accounts (Loans, Creditors)
• Revenue accounts (Sales, Commission Received)
• Capital account

These balances are transferred to the trial balance at period end to verify accuracy.

General Ledger vs Subsidiary Ledger

General Ledger

The main ledger containing all accounts. It's the source for preparing financial statements.

Contains:

• All asset accounts
• All liability accounts
• All equity accounts
• All revenue accounts
• All expense accounts

Subsidiary Ledger

A detailed ledger that supports a general ledger control account.

Types:

• Accounts Receivable Ledger: Individual customer accounts
• Accounts Payable Ledger: Individual supplier accounts

The total of the subsidiary ledger must match the control account in the general ledger. This helps in bank reconciliation and error detection.

Ledger Account in Accounting Software

Modern businesses use software to maintain ledgers automatically:

Popular Accounting Software

When you enter a transaction in accounting software, the system automatically posts to the correct ledger accounts. You don't manually write "To" or "By"—the software handles it. However, understanding manual ledger posting helps you verify software accuracy and troubleshoot errors.

For practical guidance on software-based entries, see our TallyPrime journal entries guide.

Common Mistakes in Ledger Posting

1. Posting to Wrong Side

Problem: Entering a debit as credit or vice versa.

Solution: Always check the journal entry first. Debit in journal = debit in ledger.

2. Wrong Account Name in Particulars

Problem: Writing the same account name instead of the corresponding account.

Example of error: In Cash Account, writing "To Cash A/c" instead of "To Sales A/c"

Solution: On the debit side, write the account that was credited. On the credit side, write the account that was debited.

3. Omitting Entries

Problem: Forgetting to post one side of a transaction.

Solution: Use a checklist. Tick off each journal entry after posting both accounts.

4. Posting Wrong Amount

Problem: Entering incorrect figures due to transposition or calculation errors.

Solution: Double-check amounts against source documents before posting.

Made a mistake in your journal entry? Learn how to find and fix it with our comprehensive guide on types of errors in accounting

5. Not Balancing Regularly

Problem: Waiting too long to balance accounts, making error detection difficult.

Solution: Balance accounts monthly. This helps catch mistakes early.

Ledger Posting for Exam Success

If you're preparing for Class 12, CA Foundation, or ACCA exams, follow these tips:

For Class 12 Commerce Students

• Practice at least 20 ledger posting questions weekly
• Focus on balancing accounts correctly
• Learn the format—examiners check presentation
• Connect ledger balances to trial balance preparation

For ACCA FIA (FA1/FA2) Candidates

• Understand computerised ledger systems
• Practice control account reconciliations
• Focus on error correction through ledgers
• Review how ledgers feed into financial statements

Quick Exam Checklist

• ✅ Can you identify the account type (Personal, Real, Nominal)?
• ✅ Do you know which side to post (debit or credit)?
• ✅ Can you write correct particulars (To/By with corresponding account)?
• ✅ Can you balance an account and carry forward correctly?
• ✅ Do you understand how ledger balances form the trial balance?

How Ledgers Connect to Financial Statements

Ledger accounts are the building blocks of financial reports:

Income Statement Connection

All nominal accounts (expenses and revenues) from the ledger feed into the income statement.

Example:

• Sales Account (Credit balance): ₹5,00,000
• Purchases Account (Debit balance): ₹3,00,000
• Salary Account (Debit balance): ₹80,000
• Rent Account (Debit balance): ₹20,000
• Gross Profit: ₹2,00,000
• Net Profit: ₹1,00,000

Balance Sheet Connection

All real and personal accounts (assets, liabilities, capital) appear on the balance sheet. Understanding current assets and current liabilities helps you classify ledger balances correctly.

The Complete Flow

Transactions → Journal → Ledger → Trial Balance → Financial Statements

Each step builds on the previous one. Accurate ledger posting ensures accurate financial reporting.

Practical Exercise: Complete Ledger Posting

Let's practice with a comprehensive example. Post these March transactions to ledger accounts and prepare the trial balance:

Transactions:

1. Mar 1: Started business with ₹2,00,000 cash
2. Mar 3: Purchased goods ₹50,000 on credit from Mehta & Co.
3. Mar 5: Sold goods ₹35,000 for cash
4. Mar 8: Paid rent ₹8,000 by cash
5. Mar 12: Sold goods ₹45,000 on credit to Patel Traders
6. Mar 15: Received ₹30,000 from Patel Traders
7. Mar 20: Paid ₹40,000 to Mehta & Co.
8. Mar 25: Paid salary ₹12,000 by cash
9. Mar 31: Purchased furniture ₹25,000 by cheque

Solution: Ledger Accounts

Cash Account

Capital Account

Purchases Account

Mehta & Co. Account

Sales Account

Patel Traders Account

Rent Account

Salary Account

Furniture Account

Bank Account

(Note: Bank shows credit balance indicating overdraft)

Trial Balance as at 31st March

The trial balance tallies, confirming our ledger posting is correct.

FAQs About Ledger Accounts

What is a ledger account?

A ledger account is a record that contains all transactions related to a specific account. It shows debits on the left sideand credits on the right side, summarising all increases and decreases in that account.

What is the difference between journal and ledger?

The journal records transactions in chronological order (date-wise), while the ledger classifies transactions by account (account-wise). Journal is the book of original entry; ledger is the book of final entry.

How do you post from journal to ledger?

Identify the accounts in the journal entry. Post debits to the debit side of the respective ledger. Post credits to the credit side. Use "To" prefix on debit side and "By" prefix on credit side in the particulars column.

What is the format of a ledger account?

The standard format is a T-Account with two sides. The left side is for debits (Dr.), and the right side is for credits (Cr.). Each side has columns for Date, Particulars, and Amount.

How do you balance a ledger account?

Add both sides separately. Enter the difference on the smaller side as "Balance c/d." Total both sides (they should now match). Bring the balance to the opposite side in the next period as "Balance b/d."

What is a general ledger?

The general ledger is the main ledger containing all accounts of a business. It includes assets, liabilities, equity, revenues, and expenses. It's the source for preparing financial statements.

What is a subsidiary ledger?

A subsidiary ledger contains detailed records supporting a control account. Examples include accounts receivable ledger (individual customer accounts) and accounts payable ledger (individual supplier accounts).

Why is ledger posting important?

Ledger posting organises transactions by account, making it easy to find account balances, prepare trial balances, detect errors, and generate financial statements.

What are the three types of ledger accounts?

The three types are: Personal accounts (relating to persons/organisations), Real accounts (relating to assets), and Nominal accounts (relating to expenses, incomes, gains, and losses).

Can ledger accounts have zero balance?

Yes. If total debits equal total credits in an account, the balance is zero. This often happens when an account is fully settled, like when a debtor pays their entire outstanding amount.

Key Takeaways

1. Ledger is the book of final entry: All journal entries are posted here, organised by account.
2. T-Account format is standard: Debits on left, credits on right—always.
3. Use correct prefixes: "To" on debit side, "By" on credit side.
4. Balance accounts regularly: This helps detect errors early and prepares you for trial balance.
5. Understand account types: Personal, Real, and Nominal accounts follow different rules.
6. Ledgers feed financial statements: Accurate posting ensures accurate reporting.
7. Practice makes perfect: The more you post, the more natural it becomes.

Related Topics to Explore

• Double Entry System: Rules & Examples
• Journal Entries: 100+ Examples Guide
• Trial Balance: Format & Preparation
• Bank Reconciliation Statement Guide
• Depreciation Methods with Examples
• Accrual Concept in Accounting
• Current Assets Explained
• Current Liabilities Guide

External Resources

For official guidance on accounting qualifications and professional standards, visit [ACCA Global](https://www.accaglobal.com

✍️ Author Bio

This guide was written by Vijaya Swaminathan, CA, a chartered accountant with 25 years of experience and 15 yearsspecialising in IFRS training and implementation.