Ledger Accounts and Running Balance

Key Concepts

After journalising, entries are posted to the ledger. Each ledger account consolidates all entries for one specific account (e.g. all entries involving Inventory in one place). The ledger shows a running balance after every entry.

Ledger format (columnar):

Key points:

• The Particulars column names the other account — not the account you are writing up.
• The DR / CR column follows the account being posted:
  • If this account was debited in the journal entry, enter the amount in the DR column.
  • If it was credited, enter the amount in the CR column.
• The Balance column shows the running total. Label it Dr or Cr.
  • The balance should follow the nature of the account — a debit-natured account (e.g. Trade receivables, Inventory) should normally show a Dr balance; a credit-natured account (e.g. Trade payables) should show a Cr balance.
  • An unexpected sign usually means an error.
  • Exception: Cash at bank can show a Cr balance when the business is overdrawn (i.e. the business has spent more than it has in the bank and owes the bank money).
• For Trade receivables and Trade payables, always include the counterparty name: e.g. Trade payables — Arjun, not just Trade payables.

a/c is short for "account". Students may write either "Inventory account" or "Inventory a/c" — both are accepted.

Opening and closing balances:

• If there is an opening balance, enter it as Balance b/d on the first day of the period — this is always the first entry.
• At the end of the period, bring the closing balance down to the first day of the next period as Balance b/d — this is always the last entry.

Note:

The closing balance you carry down becomes the next period's opening balance. That is why the same Balance b/d figure appears twice — once as the last line of this period, and once as the first line of the next.

Computing the running balance:

• If the account is debit-natured (assets, expenses, drawings): a debit entry adds to the balance; a credit entry subtracts.
• If the account is credit-natured (liabilities, equity, income): a credit entry adds to the balance; a debit entry subtracts.
• When the balance reaches zero, leave blank or write a dash — no Dr or Cr label is needed.

How to Remember

Running balance direction:

• Debit-natured account (assets, expenses, drawings): debit entry adds to the balance; credit entry subtracts.
• Credit-natured account (liabilities, equity, income): credit entry adds to the balance; debit entry subtracts.

Balance b/d:

• Written at the start of the period if there is an opening balance — always the first entry.
• Written at the start of the next period to carry the closing balance forward — always the last entry.