Ledger Maintenance in India: Complete Bookkeeping Guide

Introduction: The Foundation of Financial Trust

When the tax officer walked into Mohan’s garment shop for a survey, he asked to see the stock register and purchase ledger. Mohan’s heart sank—his “records” were a jumble of bills stuffed in cardboard boxes.

“Three hours of chaos,” Mohan recalls. “The officer estimated higher income, and I paid ₹2 lakhs extra tax because I couldn’t prove my actual purchases.”

Six months later, after implementing proper ledgers, another inspection became a formality. “I showed him organized ledgers, he verified a few entries, and left in 30 minutes with no additional assessment.”

This is the power of proper ledger maintenance—it protects your business, saves money, and provides clarity for decision-making.

Understanding Ledgers in Accounting

What is a Ledger?

A ledger is a book or digital record containing accounts. Each account shows:

• All transactions affecting it
• Running balance
• Date and reference for each entry

The Accounting Cycle

Transaction → Source Document → Journal Entry → Ledger Posting → Trial Balance → Financial Statements

Types of Ledgers

1. General Ledger (GL)

• Contains all accounts
• Main book of final entry
• Basis for financial statements

2. Subsidiary Ledgers

• Detailed records supporting GL
• Examples: Accounts Receivable Ledger, Accounts Payable Ledger

3. Private Ledger

• Contains confidential accounts
• Capital accounts, drawings, partners’ accounts

Chart of Accounts

What is a Chart of Accounts?

A systematic list of all accounts used by a business, typically organized by:

• Account code/number
• Account name
• Account type
• Description

Account Classification

Sample Chart of Accounts (Indian SME)

The General Ledger

Ledger Format

Traditional T-Account Format:

                    ACCOUNT NAME
                  Account No: XXXX
----------------------------------------------------------------
Date    | Particulars    | Ref  | Debit  || Date   | Particulars   | Ref  | Credit
----------------------------------------------------------------
        |                |      |        ||        |               |      |

Modern Columnar Format:

Sample General Ledger Entries

Cash Account (1000)

Sales Account (4000)

Subsidiary Ledgers

Accounts Receivable Ledger

Individual accounts for each customer:

Customer: ABC Trading Ltd

Accounts Receivable Control Account (General Ledger)

The sum of all individual customer balances must equal this control account.

Accounts Payable Ledger

Individual accounts for each supplier:

Supplier: Gupta Suppliers Pvt Ltd

Inventory Ledger

Track inventory movements and valuation:

Product: Widget Model A (Stock Code: WGT-001)

*Using weighted average method

Posting Procedures

From Journal to Ledger

Step-by-Step Process:

Step 1: Record transaction in journal with proper debit and credit

Step 2: Identify accounts affected

Step 3: Post debit entry to relevant account(s)

Step 4: Post credit entry to relevant account(s)

Step 5: Reference journal entry in ledger

Step 6: Update running balance

Example: Complete Posting

Transaction: April 15 - Purchased goods worth ₹50,000 from XYZ Suppliers on credit, GST @18%

Journal Entry (JV-025):

Ledger Postings:

Purchases Account (5000):

GST Input Credit Account (1500):

XYZ Suppliers Account (Creditors Ledger):

Ledger Maintenance Best Practices

Daily Tasks

1. Post all transactions – Don’t let entries pile up
2. Verify cash balance – Physical count matches book
3. Review pending invoices – Ensure timely recording
4. Back up data – If using software

Weekly Tasks

1. Reconcile subsidiary ledgers – Debtors, creditors
2. Review outstanding items – Follow up on receivables
3. Update inventory records – If perpetual system used
4. Review unusual entries – Investigate anomalies

Monthly Tasks

1. Bank reconciliation – All accounts
2. Control account reconciliation – Subsidiary to GL
3. Review aging reports – Receivables and payables
4. Prepare trial balance – Check arithmetic accuracy
5. Review suspense account – Clear unidentified items
6. Close temporary accounts – If using periodic closing

Annual Tasks

1. Physical verification – Inventory, fixed assets, cash
2. Confirmation of balances – Debtors, creditors, banks
3. Review provisions – Bad debts, warranties, etc.
4. Depreciation calculation – Update asset values
5. Closing entries – Transfer to retained earnings
6. Archive records – As per statutory requirements

Common Ledger Errors and Corrections

Types of Errors

1. Error of Omission Transaction not recorded at all

Correction: Pass the entry when discovered

2. Error of Commission Entry made to wrong account of same type

Example: Credited Sharma’s account instead of Verma’s account

Correction:

Sharma's A/c    Dr.    [Amount]
   To Verma's A/c         [Amount]

3. Error of Principle Entry made to wrong class of account

Example: Repairs debited to Machinery instead of Repairs Expense

Correction:

Repairs Expense A/c    Dr.    [Amount]
   To Machinery A/c              [Amount]

4. Error of Original Entry Wrong amount recorded

Example: ₹5,600 recorded as ₹6,500

Correction: Pass entry for difference (₹900)

5. Compensating Error Two errors that cancel each other

Example: One account over-debited by ₹1,000, another under-debited by ₹1,000

6. Error of Duplication Same entry recorded twice

Correction: Reverse one entry

Error Correction Best Practices

1. Never erase or overwrite – Use proper correcting entries
2. Document corrections – Note reason and authorization
3. Maintain audit trail – Show original and corrected entries
4. Review controls – Prevent recurrence

Statutory Requirements in India

Books to Maintain (Companies Act, 2013)

Section 128 requires every company to maintain:

1. Cash book
2. Day books (journal)
3. Ledger
4. Bank book
5. Stock register
6. Fixed asset register

Retention Period: 8 years from end of financial year

For Income Tax

Section 44AA specifies book-keeping requirements:

For Professionals:

• Cash book
• Journal (if mercantile system)
• Ledger
• Carbon copies of bills above ₹25
• Original bills for expenses above ₹50

For Business:

• Similar requirements if turnover exceeds limits

For GST

Required records under GST:

1. Production/manufacture registers
2. Stock registers (inputs, outputs)
3. Purchase and sales registers
4. Input tax credit details
5. Output tax details
6. Invoice details

Computerized Ledger Systems

Popular Accounting Software in India

For Small Business:

• Tally Prime
• Zoho Books
• Busy Accounting
• Marg ERP

For Medium Business:

• QuickBooks
• Vyapar
• Reach Accounting

For Large Business:

• SAP
• Oracle Financials
• Microsoft Dynamics

Features to Look For

1. GST compliance – Auto-calculation, return filing
2. Multi-currency support – For international business
3. Inventory integration – Stock and accounts linked
4. Bank reconciliation – Auto-matching features
5. Reports – Customizable financial reports
6. Backup options – Cloud or local
7. Multi-user access – For team work
8. Audit trail – Track all changes

Manual vs Computerized

Reconciliation Procedures

Bank Reconciliation

Steps:

1. Obtain bank statement for period
2. Compare with cash book/bank ledger
3. Identify differences:
   • Cheques issued but not cleared
   • Deposits in transit
   • Bank charges not recorded
   • Interest credited/debited
   • Errors (bank or book)
4. Prepare Bank Reconciliation Statement
5. Pass adjusting entries

Bank Reconciliation Format:

Control Account Reconciliation

Process:

1. List all subsidiary ledger balances
2. Total subsidiary balances
3. Compare with control account
4. Investigate differences
5. Make corrections

Example - Debtors Reconciliation:

Investigation: Found unposted sales invoice of ₹5,000

Key Takeaways

1. Ledgers are the backbone of accounting records
2. Chart of accounts provides organization and consistency
3. Posting procedures must be followed meticulously
4. Subsidiary ledgers provide detail while control accounts provide summary
5. Regular reconciliation prevents errors from compounding
6. Computerization improves accuracy and efficiency
7. Statutory compliance requires minimum records and retention

Disclaimer

This article is for educational purposes only and does not constitute professional accounting advice. Ledger maintenance requirements may vary based on business type and applicable regulations. Consult a qualified Chartered Accountant for specific guidance.

Ledger Maintenance Checklist

Daily:

• All transactions recorded
• Cash balance verified
• Bank transactions posted

Weekly:

• Debtors ledger reviewed
• Creditors ledger updated
• Unusual items investigated

Monthly:

• Bank reconciliation completed
• Control accounts reconciled
• Trial balance prepared
• Aging reports reviewed

Quarterly:

• GST reconciliation
• Physical stock verification (sample)
• Fixed asset additions reviewed

Annually:

• Full physical verification
• Balance confirmations obtained
• Year-end closing completed
• Records archived

Proper ledger maintenance isn’t exciting work, but it’s the foundation that makes everything else possible—accurate reporting, smooth audits, confident decision-making, and peaceful sleep when tax season arrives.