1.7 The journal and the ledger

The journal and the ledger

4 min read · Named concept: Same lines, sorted twice

Draft: the wording may change.

The idea

The journal and the ledger hold the same postings. The journal sorts them by date and groups them by event. The ledger picks one account and adds a running balance. Nothing new is written — the same lines are sorted twice.

Same lines, sorted twice: the journal sorts postings by date, the ledger by account

One worked example: Ravi Stores in October

1 Oct — Ravi Stores pays an advance of ₹500 in cash.
5 Oct — Bill #245 to Ravi Stores: goods ₹1,000 + GST ₹180 = ₹1,180. The advance is adjusted against it.
10 Oct — Ravi Stores pays ₹600 in cash.
12 Oct — A cash sale, bill #246: goods ₹200 + GST ₹36 = ₹236.

Before reading on, guess: at the end, does Ravi owe us, or do we owe Ravi — and how much?

What is actually stored: twelve postings

#	Date	Document	Account	Party	Debit	Credit
p1	1 Oct	Receipt R-01	Cash		500
p2	1 Oct	Receipt R-01	Customer Advances	Ravi		500
p3	5 Oct	Bill #245	Sundry Debtors	Ravi	1,180
p4	5 Oct	Bill #245	Sales			1,000
p5	5 Oct	Bill #245	GST Output			180
p6	5 Oct	Adjustment J-01	Customer Advances	Ravi	500
p7	5 Oct	Adjustment J-01	Sundry Debtors	Ravi		500
p8	10 Oct	Receipt R-02	Cash		600
p9	10 Oct	Receipt R-02	Sundry Debtors	Ravi		600
p10	12 Oct	Bill #246	Cash		236
p11	12 Oct	Bill #246	Sales			200
p12	12 Oct	Bill #246	GST Output			36

This table is the whole truth. Every report below is calculated from these twelve lines.

View 1: the journal

Grouped by event, sorted by date. It answers what happened, and does each event balance? It has no running balances.

1 Oct   Receipt R-01      Cash                       Dr    500
                            To Customer Advances (Ravi)           500
5 Oct   Bill #245         Sundry Debtors (Ravi)      Dr  1,180
                            To Sales                            1,000
                            To GST Output                         180
5 Oct   Adjustment J-01   Customer Advances (Ravi)   Dr    500
                            To Sundry Debtors (Ravi)              500
10 Oct  Receipt R-02      Cash                       Dr    600
                            To Sundry Debtors (Ravi)              600
12 Oct  Bill #246         Cash                       Dr    236
                            To Sales                              200
                            To GST Output                          36

View 2: the ledger

One account at a time, with a running balance. Each line names the other account as a pointer.

Cash

Date	Against	Debit	Balance
1 Oct	Customer Advances	500	500 Dr
10 Oct	Sundry Debtors	600	1,100 Dr
12 Oct	Sales	236	1,336 Dr

Sales

Date	Against	Debit	Credit	Balance
5 Oct	Ravi Stores		1,000	1,000 Cr
12 Oct	Cash		200	1,200 Cr

Bill #245 is one block in the journal but three lines on three different ledger pages.

View 3: the party statement

Filtered by party, across all its accounts:

Date	Document	Account	Debit	Credit	Net balance
1 Oct	R-01	Customer Advances		500	500 Cr (we owe Ravi)
5 Oct	#245	Sundry Debtors	1,180		680 Dr
5 Oct	J-01	Customer Advances	500		1,180 Dr
5 Oct	J-01	Sundry Debtors		500	680 Dr
10 Oct	R-02	Sundry Debtors		600	80 Dr — Ravi owes ₹80

The answer to the guess: Ravi owes us ₹80.

Every report is a view

	Journal	Ledger	Party statement	Trial balance
Filter	All postings	One account	One party	All postings
Grouped by	Document	—	—	Account
Running balance	No	Yes	Yes (net)	Closing only
Answers	What happened?	Where does this account stand?	Where do we stand with this party?	Do the books balance?

If the postings are right, every view is right automatically. If two reports disagree, a posting is wrong.

Balances are calculated, not written down

On paper, the clerk wrote a running balance on every ledger line because there was no other way. In software that is a trap: one backdated bill and every stored balance after it is wrong. The bank does not store your balance on every passbook line — it prints it when you update the passbook. A system may keep the current balance as a quick-lookup copy, but it must be rebuilt from the postings and checked.

Common mistake

Fixing a ledger or a statement by hand so it "matches". The report is only a view; change the posting (through its document) and every view corrects itself.

Where you'll use this

In Part 3, the outstanding statement a salesman shows a retailer on the beat is View 3. When the retailer says "I paid", you check the party statement line by line against the documents.

Check yourself

Bill #245 has three postings. On how many ledger pages does it appear?
Which view would you open to answer "what happened on 5 October"?
Why should a system not store the running balance on every line?

Answers

Three: Sundry Debtors (Ravi), Sales and GST Output.
The journal (day book).
A backdated edit would make every later stored balance wrong; calculate it when the ledger is shown.