Ledger or Book of Final Entry – Definition, Types, Examples and Purpose of Uses:
Ledger is a book of accounts (also called book of final entry) in which all the accounting transactions are entered in a classified manner. The accounts kept in various ledgers contain the transactions posted from the books of original entry. An organisation working on a small scale can have just a small number of accounts. For larger businesses it may be very difficult and time consuming to maintain all accounts in a single ledger, the businesses usually categorises the accounts in the following way.
(1) Personal Ledgers – Definition and its Use:
The trial balance shows the total amount due from trade receivables and the total amount due to trade payables. A business selling goods on credit’ however, needs a separate account for each trade receivable and each trade payable. Business normally maintain all personal accounts of trade receivables and trade payable in separate ledgers, whereas other accounts are kept in general ledger.
(2) Cash Book – Definition and its Use:
Cash book contains cash and bank accounts to record receipts and payments of cash and cheques. As aforesaid that the cash book is also a ledger account in addition to a book of original entry. It has both debit and credit side, just like any other ledger account.
(3) General Ledger or Nominal Ledger – Definition and its Use:
General ledger book also known as nominal ledger contains the remaining accounts like accounts for assets, liabilities, capital (if private ledger is not kept), incomes and expenses.
(4) Private Ledger – Definition and its Use:
Occasionally in order to ensure privacy of transactions relating to owner’s capital, drawings and other related accounts are held in a separate book known as private ledger.