What is Ledger?

In accounting, especially in financial accounting, the term ledger is discussed many times. However, use of ledger is not limited just to financial accounting as we do have ledger accounting in cost accounting as well.

Ledger simply means collection of related accounts at one place i.e. a set of accounts mean ledger.

Usually accounts with similar characteristics or nature or transactions pertaining to particular element of financial statements are kept at together so that all the relevant and related accounts can be maintained easily and accountant does not loose the track of any account and the transactions therein. For example, accounts of all the creditors when put together at one location then it is called Payables Ledger or Creditors Ledger or Purchases Ledger.

You can assume a physical notebook (NOT electronic notebook which is also named as laptop :-D) where on each page we maintain different accounts. This one notebook, which has a collection of accounts in it, can be termed as ledger.

In these days, when we accounting software and electronic packages to maintain accounting records, ledger simply means a category which contain similar accounts. Categorizing entries in journals and then posting such entries in accounts and then categorizing numerous ledgers into different ledgers does make bookkeeping not only efficient but also error free. This is just one advantage of having accounts under different ledgers. Ledger play important role when management wants to carry out different analysis on such accounts that belong to belong to particular dimension. For example, aged analysis of debtors. If we are maintaining debtors accounts under Sales Ledger then it will be a matter of few clicks otherwise we will first have to find each account and then analysis will be done.

Now a days, it has been observed that difference of accounts and ledgers is not recognized and usually people use the term ledgers to mean accounts. However, the difference is significant. To read more about ledgers and accounts check the links provided below.

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