What is the principal book of accounts?
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The term “principal book of accounts” refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account.
So to put it simply, the principal book of accounts mean ledgers.
Ledgers are prepared by posting the debits and credits of a journal entry to the respective accounts.
A ledger groups the transactions concerning the same account. For example, Mr B is a debtor of X Ltd. Hence all the transactions entered into with Mr. will be grouped into the ledger Mr B A/c in the books of X Ltd.
Ledgers are of utmost importance because all the information to any account can be known by its ledger.
Preparation of ledger is very important because all the information to any account can be known by its ledger. Ledgers also display the balance of each and every account which may be debit or credit. This helps in the preparation of the trial balance and subsequently the financial statements of an entity.
Hence, it is the most important book of accounts and calling it the ‘books of final entry’ is also justified.