A customer ledger, or khata, is the list of every bill and every payment of one customer in date order, with the balance he owes after each entry. That balance after each entry is called the running balance.
What do debit and credit mean in a customer ledger?
A debit increases what the customer owes you; a credit reduces it.
- Debit (Dr): a sales invoice, a charge, an opening balance he already owed.
- Credit (Cr): a payment received, goods returned, a discount allowed afterwards.
For a supplier it is the other way round: a purchase is a credit because it increases what you owe, and your payment is a debit.
How is the running balance calculated?
The running balance is the previous balance plus debits minus credits, row by row.
| Date | Particular | Debit | Credit | Balance |
|---|---|---|---|---|
| 01 Oct | Opening balance | 100,000 | 100,000 Dr | |
| 02 Oct | Sales invoice SI-00001 | 212,500 | 312,500 Dr | |
| 03 Oct | Payment received | 100,000 | 212,500 Dr | |
| 04 Oct | Sales invoice SI-00002 | 50,000 | 262,500 Dr |
On 05 October there is no entry, so the day opens and closes at 262,500. Each day's opening balance is the previous day's closing balance.
What is an opening balance?
The opening balance is what the customer owed on the day you started keeping the ledger. You enter it once, with its date and whether it is debit or credit, and every later balance builds on it.
What happens when you enter a bill with an old date?
Every balance after that date must change. If you add a bill of 12,000 dated 02 October to the ledger above, the balance on 02 October becomes 324,500, on 03 October 224,500 and on 04 October 274,500.
This is where paper fails. In a register you would have to cross out and rewrite every later line. Software does not store the balance at all: it adds the rows up in date order each time, so a back-dated or reversed entry corrects every later figure by itself.
Why should a payment be recorded against the customer, not the bill?
Because customers in wholesale pay in round amounts, not bill by bill. A customer who owes 262,500 pays 100,000. The ledger shows 162,500 outstanding without you deciding which bill the money belongs to.
What should a customer statement show?
A statement should show the opening balance, every entry in date order with its reference number, and the closing balance, for the period the customer asks about. If it does, a dispute ends in a minute: you both read the same lines.
In M-Tech Logistics: every customer and supplier has a running ledger with a row view and a day-wise view, a printable statement and a credit limit. Balances are calculated from the entries, so they cannot drift. See the ledger in the software, or read how to use it for managing udhaar.