Ledger Account Examples

Definition

The ledger accounts are the separate records of the business transactions carried by an entity which are
prepared using the reference of the daily journal entries and are related to a specific account which can
be an asset or a liability, capital or equity, expense item or revenue item.

Basically a ledger account contains information about the opening and the closing balances of a
particular account and the periodical debit and credit adjustments on the basis of journal entries
prepared on daily basis.

The most important information that a ledger account provides are the periodical (usually annual)
closing balances about a specific item or account.

The ledger accounts are important in formation of trial balances and also the financial statements of the
company.

Journal Ledger Financial

Transactions Trial Balance
Entries Accounts Statements

Some common examples of ledger accounts are:

Assets Liabilities Income Expenses

Cash Capital Sales or Revenue Operating

Inventory Debt Dividend or Expenses
Fixed Assets Accounts Payable Interest Income Administrative
Accounts Accrued Expenses Expenses
Receivable Depreciation
Taxes

In order to better understand the working of ledger accounts, let’s discuss some examples:-

Example 1: Mr. John Wick wants to start a new clothing business. He has a total sum of $100,000 in his
savings that can be invested. He owns a small shop at a primary location that can be used to start a retail
clothing outlet. For the store he purchased furniture including shelves, a counter desk and others
equipments for $15,000. He also hires a staff of two for customer support and other office work for
$5,000 each.
Mr. Wick decided to start with men’s clothing and purchased a complete range of men clothes from the
wholesale market which costs him around $75,000. The initial purchase got sold in a period of not more
than 1 month for a total of $95000.

Mr. Wick wants to journalize these transactions and create ledger accounts for the month of April 2019.

1. Journal Entries

Journal Entries
      Amount in $
L.F
Date Particulars . Debit Credit
1/4/201
9 Cash A/c 10 100,000.00  
  To Capital A/c 1 100,000.00
 Being Capital Invested      
1/4/201
9 Furniture and Equipments 11 15,000.00  
  To Cash A/c 10 15,000.00
Being purchase of furniture   
1/4/201
9 Purchase A/c 2 75,000.00  
  To Cash A/c 10 75,000.00
Being purchase of Goods        
30/4/19 Salaries A/c 5 10,000.00  
  To Cash A/c 10 10,000.00
Being payment of Salary      
Apr-19 Cash A/c 10 95,000.00  
  To Sales 3 95,000.00
 Being Sales made against Cash      

2. Ledger Accounts

Cash Account (No.10)

J.R J.R
Date Particulars . Amount Date Particulars . Amount
1/4/2019 To Balance b/d   - 1/4/2019 By Furniture A/c 11 15,000.00
1/4/2019 To Capital A/c 1 100,000.00 1/4/2019 By purchase A/c 2 75,000.00
Apr-19 To Salesl A/c 3 95,000.00 30/4/2019 By Salaries A/c 5 10,000.00
    30/4/2019 By Balance c/d 95,000.00
      195,000.00       195,000.00

Capital Account (No.1)

J.R J.R
Date Particulars . Amount Date Particulars . Amount
 1/4/2019       By Balance b/d   -
  To Balance c/d 100,000.00 30/4/2019 By Cash 10 100,000.00
      100,000.00       100,000.00

Furniture Account (No.11)

J.R J.R
Date Particulars . Amount Date Particulars . Amount
1/4/2019 To Balance b/d   -        
1/4/2019 To Cash A/c 10 15,000.00 30/4/2019 By Balance c/d 15,000.00
      15,000.00       15,000.00

Purchase Account (No.2)

J.R J.R
Date Particulars . Amount Date Particulars . Amount
1/4/2019 To Balance b/d   -        
1/4/2019 To Cash A/c 10 75,000.00 30/4/2019 By Balance c/d 75,000.00
      75,000.00       75,000.00

Sales Account (No.3)

J.R J.R
Date Particulars . Amount Date Particulars . Amount
        By Balance b/d   -
  To Balance c/d 95,000.00 30/4/2019 By Cash 10 95,000.00
      95,000.00       95,000.00

Salary Account (No.5)

J.R J.R
Date Particulars . Amount Date Particulars . Amount
        By Balance b/d   -
  To Balance c/d 10,000.00 30/4/2019 By Cash 10 10,000.00
      10,000.00       10,000.00

Example 2: David Baker wants to start a forging factory, where he can manufacture high quality of chef
and military knives. On January 1 2018, he invested a sum of $1,000,000 as capital and started The
Damascus Forging Works. He took a bank loan of $750,000 @ 5% PA and invests remaining amount of
$250,000 from his own savings. He opened a current account and deposited $800,000.

Afterwards he made the following transactions

 On Jan 2, he rented a factory in the nearby industrial area for $20,000 per month and deposited
$100,000 in advance by cheque.
 On Jan 4, Mr. Baker purchased the necessary machineries for $500,000, paid by cheque.
 After setting up the factory, he started production from 5 thJan and following transactions took place
during 1st year:-

Particulars Amount ($)

Purchases (including credit purchases of $
400,000) 800,000.00
Sales (including credit Sales of $ 200,000) 1,000,000.00
Rent 240,000.00
Electricity 25,000.00
Wages 45,000.00
Interest expenses 37,500.00
Principal returned to bank 75,000.00
Depreciation on machinery @ 10% PA 50,000.00

Since Mr. Baker maintained all the accounting records himself, he wants our help to create ledger
accounts for the firm.

The ledger accounts:-

Ledger Folio
Accounts (LF)
Cash   1
Bank   2
Capital   3
Bank Loan   4
Factory Advance   5
Purchases 6
Creditors   7
Sales 8
Debtors   9
Rent 10
Electricity 11
Wages 12
Interest expenses 13
Machinery A/c   14
Depreciation 15
 Cash Account (No.1)
Date Particulars J.R Amount Date Particulars J.R Amount

1/1/2019 To capital 3 250,000.00 1/1/2019 By bank a/c 2 800,000.00

  To sales a/c 8 800,000.00   By Electricity a/c 11 25,000.00

    By Wages 12 45,000.00
       

      By bal c/d 180,000.00

     
      1,050,000.0       1,050,000.00

Bank Account (No.2)

Date Particulars J.R Amount Date Particulars J.R Amount
By Factory advance
1/1/2019 To cash a/c 1 800,000.00 2/1/2019 a/c 5 100,000.00
To Bank loan
1/1/2019 a/c 4 750,000.00 4/1/2019 By machinery a/c 14 500,000.00

  By purchase a/c 6 400,000.00

      By rent a/c 10 240,000.00

      By interest exp 13 37,500.00

      By Bank Loan 4 75,000.00

     

      By bal c/d 197,500.00

      1,550,000.0       1,550,000.00
 Capital Account (No.3)
Date Particulars J.R Amount Date Particulars J.R Amount

31/12/19 By bal c/d   250,000.00 1/1/2019 By cash a/c 1 250,000.00

      250,000.00       250,000.00

Bank Loan Account (No.4)

Date Particulars J.R Amount Date Particulars J.R Amount
1/1/2019 To Bank 2 75,000 1/1/2019 By Bank a/c 2 750,000
31/12/19 By bal c/d   675,000  
 
    750,000.00       750,000.00

Factory Advance Account (No.5)

Date Particulars J.R Amount Date Particulars J.R Amount

1/1/2019 To Bank a/c 2 100,000.00 31/12/19 By bal c/d   100,000.00

      100,000.00       100,000.00

Purchase Account (No.6)

Date Particulars J.R Amount Date Particulars J.R Amount

1/1/2019 To Bank 2 400,000.00 31/12/19 By bal c/d   800,000.00

To creditors
  a/c 7 400,000.00  

      800,000.00       800,000.00

Creditors Account (No.7)

Date Particulars J.R Amount Date Particulars J.R Amount

31/12/19 To balance c/d   400,000.00   By purchase a/c 6 400,000.00

      400,000.00       400,000.00
 Sales Account (No.8)
Date Particulars J.R Amount Date Particulars J.R Amount

31/12/19 To balance c/d   1,000,000.0 2019 By cash a/c 2 800,000.00

    2019 By debtors a/c 9 200,000.00

      1,000,000.0       1,000,000.0

Debtors Account (No.9)

Date Particulars J.R Amount Date Particulars J.R Amount

1/1/2019 To sales a/c 8 200,000.00 31/12/19 By bal c/d   200,000.00

      200,000.00       200,000.00

Rent Account (No.10)

Date Particulars J.R Amount Date Particulars J.R Amount

1/1/2019 To Bank 2 240,000.00 31/12/19 By bal c/d   240,000.00

      240,000.00       240,000.00

Electricity Account (No.11)

Date Particulars J.R Amount Date Particulars J.R Amount

1/1/2019 To cash 1 25,000.00 31/12/19 By bal c/d   25,000.00

      25,000.00       25,000.00

Wages Account (No.12)

Date Particulars J.R Amount Date Particulars J.R Amount

31/12/19 To cash a/c 1 45,000.00 31/12/19 By bal c/d   45,000.00

      45,000.00       45,000.00

Interest Account (No.13)

Date Particulars J.R Amount Date Particulars J.R Amount

31/12/19 To bank a/c 2 37,500.00 31/12/19 By bal c/d   37,500.00

      37,500.00       37,500.00

Machinery Account (No.14)

Date Particulars J.R Amount Date Particulars J.R Amount

1/1/2019 To bank a/c 2 500,000.00 31/12/19 By Depreciation 15 50,000.00

    31/12/19 By bal c/d 450,000.00

      500,000.00       500,000.00

Depreciation Account (No.15)

J.R J.R
Date Particulars . Amount Date Particulars . Amount
31/12/20 To Machinery 31/12/20
19 a/c 14 50,000.00 19 By bal c/d   50,000.00

      50,000.00       50,000.00