Introduction
A ledger is a book that records all financial transactions of the business firm systematically. It helps the management to track financial activities of the business because it contains different accounts (such as assets account, liabilities account, equity accounts) to record different types of transactions. It is used to prepare income statement and balance sheet of the company.
Objectives Of Ledger
Main objectives of preparing ledger accounts can be expressed as follows:
1. Classification And Recording Of Business Transactions
The ledger classifies financial transactions into different subjects (income, expenses, assets etc.) and makes a permanent records of all the transactions systematically.
2. Basis Of Trial Balance
Trial balance is prepared on the basis of ledger accounts which helps to check the arithmetical accuracy of financial records.
Profit and loss account is prepared at the end of accounting period with the help of ledger which helps to ascertain the profit or loss of the business.
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4. Basis Of Balance Sheet
Balance sheet is prepared to reveal the financial position of business at the end of the year. Ledger provides financial data to prepare balance sheet.
5. Detailed Financial Information
Ledger accounts provide financial information about expenses, income, debtors, creditors etc.
6. To Aid Decision Making
It provides accurate financial data and information about inventory, cash flow, assets, liabilities etc. that helps the management to make wise decisions.
7. To Support Auditing
Correct and up-to-date financial data helps to simplify the audit process. So, it facilitates auditing process.