Learning Materials For Accounting, Management , Finance And Economics.

Monday, June 21, 2010

Objectives Of Ledger Accounts

The following are main objectives of ledger accounts

1. To Provide Classified Financial Information

The ledger is a permanent book of record which contains a number of accounts of different subjects. Its purpose is, therefore to provide classified financial information about the subjects such as a person, asset and an expense or income.

2. To Provide Check On Arithmetical Accuracy

The fundamental double-entry principle provides that debit is always equal to credit or vice verse. Since the ledger account is prepared under the double-entry system, it helps to prepare a trial balance that provides a check on the arithmetical accuracy of the recording transactions in the books of accounts.

3. To Help Ascertain Profit Or Loss

The ledger is a book of accounts relating to all the financial transaction of the business. It contains the accounts of all expenses, losses, incomes and gains. Therefore it helps to prepare the profit and loss account of the business so as to ascertain the profit earned or loss suffered during a specified period.

4. To Help Reveal The Financial Position

The ledger also contains the accounts of the financial transactions relating to capital, all liabilities and assets of the business. With the help of the balances of these accounts and profit and loss of the business, a balance sheet may be prepared to show its financial position at a certain point in time.