Ledger Book as the Principal Book of Accounts

The correct answer is option 'b' - "Principal book of accounts."

Explanation:

A ledger book is a fundamental and essential part of the accounting system. It is the principal book of accounts where all the transactions of a business are recorded in a systematic and chronological order. The ledger book contains a detailed record of each individual account, such as assets, liabilities, capital, revenue, and expenses.

Importance of Ledger Book:

The ledger book serves as the backbone of the accounting system and provides valuable information that helps in preparing financial statements, analyzing business performance, and making informed decisions. Some key reasons why the ledger book is known as the principal book of accounts are:

1. Recording all transactions: The ledger book records every financial transaction that occurs within a business, ensuring that no transaction is missed or overlooked.

2. Classification and categorization: It classifies and categorizes transactions according to different account heads, such as assets, liabilities, equity, revenue, and expenses. This classification makes it easier to analyze and interpret financial data.

3. Posting and summarizing: The ledger book is used to post individual transactions from subsidiary books or journals to the respective accounts. This process of posting helps in summarizing and consolidating the financial information.

4. Monitoring account balances: The ledger book allows businesses to keep track of the balances in each account. It shows the debit and credit entries for each transaction, enabling businesses to monitor their financial position accurately.

5. Preparation of financial statements: The ledger book provides the necessary data for preparing financial statements like the balance sheet, income statement, and cash flow statement. These statements help in assessing the financial health and performance of a business.

Conclusion:

The ledger book is considered the principal book of accounts because it plays a central role in recording, classifying, summarizing, and monitoring financial transactions. It is the primary source for preparing financial statements and provides valuable information for decision-making and analysis.