Ledger book and its importance

Despite recent technology, the ledger book remains an important book of accounts. Although its form changes into an electronic format, businesses all over the world still use it to post business transactions permanently. When you request for a bank statement, the information you see is presented in a ledger format.

1. What's the Ledger book

The ledger book is a book of accounts in which business transactions are recorded permanently in summarized and classified forms. When a business event occurs, a source document is introduced. After which they are recorded to their respective prime books before it is recorded permanently in the ledger books. 

The other book of account used in bookkeeping is the subsidiary books. For small businesses the general journal can be used to post transactions to their respective ledger accounts. When it comes to the double entry principle, the ledger provides the medium to which the principle can be applied practically. 

The ledger book contains several accounts kept by an entity. This includes and is not limited to bank accounts, customers, suppliers, capital and expenses accounts. Because of the bulkiness of these accounts, the book is usually categorized into three. That is, the general, account payables and receivables ledgers. 

2. Format of a ledger account

A ledger account is made up of a minimum of five columns in a spreadsheet. 

• Column 1: Date
• Column 2: Description
• Column 3: Reference number
• Column 4: Debit amount
• Column 5: Credit amount

Below is a typical ledger account you can find anywhere in the world.

3. Five importance of Ledger accounts

Here are five significance of the ledger books to businesses 

3.1 Used as evidence

The ledger accounts can be used as evidence or proof of a transaction within a business and with customers. In banks, accounts are kept and printed as a statement to customers on request. This statement can be used as evidence by the customer on any issue that transpires.

3.2 Preparing trial balance

Without the ledger accounts, the trial balance cannot be prepared. More so, the trial balance is used to test the accuracy of the ledger accounts. From this, the accountants will know if there are errors.

3.3 Carryout audit trail

The book helps in audit trials. Specifically, the audit trail may begin from the financial statement, trial balance, ledger accounts and down to source documents or vice versa.

3.4 Clarify business issues

When there are issues regarding transactions that occur in an entity, the accounts in the books of account can be used to resolve the issue.

3.5 Record transactions permanently

The main importance of a ledger is to record transactions permanently. Therefore, at any point in time, the transaction of a later period can be traced and any issue on it can be resolved.

4. Conclusion

In conclusion, ledger books record business transactions permanently. The book is further divided into general, sales and purchases ledgers. One very important aspect of the book is that it can serve as a proof of transaction and used for further investigation in a business.