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New accountants do not see how an entry moves from the journal into account balances, or which balances need outside proof.
Each journal line is posted to its ledger account, updating a running balance; ledger balances form the trial balance, and some must agree with outside records.
Ledgers grouped as in Tally or Zoho Books; personal and real accounts carry forward, nominal accounts close to profit and loss.
Running ledger balances for every account, with bank, debtors, creditors and tax balances flagged for reconciliation to outside records.
The general ledger is the master set of accounts where every journal entry is posted. Each account, such as Bank, Sundry Debtors, Sales or Output GST, keeps a running balance. Those balances, listed together, form the trial balance and then the financial statements.
What is the difference between a journal, a ledger and a trial balance, and in what order does an entry travel?
An entry travels in three steps:
- Journal: the transaction is first recorded in date order, naming the accounts to debit and credit.
- Ledger: each line of the entry is posted to its own account, updating that account’s balance.
- Trial balance: at the period end, every ledger balance is listed to check that debits equal credits.
Think of the journal as a diary, the ledger as a filing cabinet with one folder per account, and the trial balance as the index card summarising every folder.
In Tally and Zoho Books you never post by hand. You enter a voucher once, and the software posts it to every ledger it touches. In Tally each ledger sits under a group, such as Sundry Debtors, Bank Accounts or Duties and Taxes, which decides where it appears on the balance sheet or profit and loss account.
The three types of account
| Type | Indian examples | Usual balance | Carries forward to next year? |
|---|---|---|---|
| Personal | Customers, suppliers, HDFC Bank current account, partners’ capital | Debtors debit; creditors and capital credit | Yes |
| Real | Cash, stock, furniture, machinery, Input GST | Debit | Yes |
| Nominal | Sales, rent, salaries, bank charges, interest received | Expenses debit; income credit | No, closes to profit and loss on 31 March |
Nominal accounts start each financial year at nil, because their totals become the year’s profit or loss. Personal and real accounts carry their closing balance forward as the next year’s opening balance.
Worked example: posting a ₹29,500 sale
On 5 August, a sale of ₹25,000 plus 18% GST is made to Mehta Traders, an intra-state customer. The journal entry is: Dr Mehta Traders ₹29,500; Cr Sales ₹25,000; Cr Output CGST ₹2,250; Cr Output SGST ₹2,250.
Here is how it reaches four ledgers, with balances before and after:
| Ledger | Balance before | Posting | Balance after |
|---|---|---|---|
| Mehta Traders | ₹40,000 Dr | Dr ₹29,500 | ₹69,500 Dr |
| Sales | ₹3,10,000 Cr | Cr ₹25,000 | ₹3,35,000 Cr |
| Output CGST | ₹27,900 Cr | Cr ₹2,250 | ₹30,150 Cr |
| Output SGST | ₹27,900 Cr | Cr ₹2,250 | ₹30,150 Cr |
When Mehta Traders pays ₹29,500 on 20 August, a receipt entry credits the customer, bringing the balance back to ₹40,000 Dr, and debits Bank by ₹29,500.
One entry touched four ledgers, and every ledger now tells its own part of the story.
Which ledger balances should agree with an outside record, and which only with each other?
Some balances are your claims about the outside world, and someone outside holds the other half of the record:
- Bank should agree with the bank statement, after timing items.
- Customers should agree with customer statements or confirmations.
- Suppliers should agree with supplier statements.
- TDS receivable should agree with Form 26AS.
- Input GST should agree with GSTR-2B.
Other balances, such as Sales, Depreciation or Provision for Expenses, have no outside counterpart. They are checked against your own documents (invoices, the fixed asset register, working notes) and against each other.
Until a balance with an outside counterpart has been checked, it is only your own claim.