Journal Accounts to Trial Balance

8/2/2019 Journal Accounts to Trial Balance

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Preparation of Journal



Single Entry Book keeping Maintained by small businesses

Records only the bare essentials

E.g. cash, accounts receivable, accounts payableand taxes

Assets, inventory, expenses, revenues &other essential elements may not be

recorded. Inadequate except where operations are

simple and volume of activity is low



Disadvantages Data may not be available for

effectively planning and controlling the

business.



DEFINITION OF JOURNAL

A book of prime entry wherethe accounts to be debited and that to be credited arespecified together,respectively, with explanation for the entry called thenarration, before being posted in the ledger, in a chronolo ical order.



Basic Accounting Rules:

1. DEBIT WHAT COMES IN,

CREDIT WHAT GOES OUT.2. DEBIT THE RECEIVER,

CREDIT THE GIVER.

3. DEBIT ALL EXPENSES AND LOSSES,

CREDIT ALL INCOMES AND GAINS.



RULES

REGARDING

INCREASE DECREASE

ASSETS DEBIT CREDIT

LIABILITIES

CRED

ITD

EBITCAPITAL CREDIT DEBIT

EXPENSES DEBIT CREDITINCOMES &

PROFITS

CREDIT DEBIT



TYPES OF JOURNAL

C ash book- for recording all the cash transactions P urchase book- for recording

all the credit purchases S ales Book- for recording all the credit sales P urchase return Book- for recording all the returns of goods purchased on credit.



Contd

S ales return Book- for recording all returns of goods sold on credit.

Bills P ayable Book- for recording bills of exchange issued to the creditors in lieu of

payments due to them.Bills Receivable book- for recording bills of exchange

received from customers in lieu of



Contd

J ournal P roper- it is meant only for such transactions which cannot be recorded in

any of the other subsidiary books.



Advantages of journal

Its use reduces the chances of error in the

book of accounts

Narration in journal entry enables one tounderstand the entry properly

It provides a permanent record of all the

transactions date wise and can thus help inauditing .

Helps in locating errors when made.



Contd

When journal is subdivided into other

subsidiary books it helps

administration of office work as the

work can be conveniently divided

among different persons.



Limitations of journal

A single journal for a big business will

become too big and unwieldy

It fails to provide the information

which normally will be required by a

businessman. For example cashbalance in hand at the end of each

day



Ruling of journal Date- in this column the date of

transaction is entered. The year is

written on the top only once. Particulars- In this column full details of

a transaction is recorded. Accounts to

be debited are indicated by the word Dr and the accounts to be creditedstart with the word To.



Contd

Narration- in every journal entry fullexplanation of the transaction is given.This will help to know in the future asto why was the account debited or

credited. Ledger folio- in this column the page no

or folio no of the ledger is recordedwhere it has been posted from the

journal.

Amount- two columns are prepared forthe amount.



Some examples

Ram started business with Rs

20,000.

Cash A/c Dr 20,000

to capital A/c 20,000

(being business started with cash Rs 20,000)



Contd.

Goods purchased f or cash Rs6000.

Purchase A/c Dr 6000

To cash A/c 6000(being goods purchased for cash)

Goods sold f or cash Rs 8000

Cash A/c Dr 8000To sales A/c 8000

(being goods sold for cash)



Ledger???

The ledger is the principle book of accounts where similar transactions relating to a particular

persons or thing are recorded.



Example:

If the manager of the company wants to

know the total purchase for anaccounting period, he can see the

³Purchasing Account´ instead

in wasting time checking the wholeJournal he can invest his time in other .



Ledger

General

Ledger

Debtors

Ledger Creditors

Ledger

Sub-divisions of ledger:



Creditors Ledger:

It may contain the all accounts of all the

suppliers from whom goods have been

purchased on credit. Entries in this Ledger are made mostly from purchase day books,

purchase returns book and cash book. This

Ledger is also called Suppliers¶ Ledger or Purchase Ledger .



General Ledger:

I

t may contain the all the residualaccounts ±mainly real and

nominal accounts. This Ledger is

also called Nominal Ledger.



Standard form of Ledger Account:

µT¶ accounts are simplified representation of ledger accounts and is widely used. A¶T¶

accounts is divided into two sides-the left hand

side represents debit side the right hand siderepresents credit side Each side of the ledger

has columns of varying sizes for the following:

(a) Date (b) Particulars (c) Folio (d) Amount

Date Particulars Folio Rs. Date Particulars Folio Rs.

Dr . Title of Accounts Cr.



Running balance form of Ledger Account:

An alternative ruling of a ledger, which is

generally adopted by commercial banks and

some other business houses, is that the entire

ledger is divided into six columns as under:(a) Date (b) Particulars (c) Folio

(d) Dr.Amount (e) Cr. Amount (f) Balance

Date Particulars Dr.Amount Cr.AmountBank Account

Folio Balance



Sequence and Numbering of a ledger Accounts:

Ledger accounts are generally arranged insome logical manner, such as assets first,followed by liabilities, owner¶s equity,revenues and expenses. Again amongst assets,fixed assets are first followed by current assetsetc. The number of accounts required by a

business will depend on it¶s size, the nature of its operation, and the policy of themanagement.



Sequence and Numbering of a ledger Accounts:

Account Title Account Number

Fixed Assets(1-15)

Good Will 01

Land 02Building 03

Current Assets(16-25)

Stock in Tr ade 16

Sundry Debtors 17

Bills Receivable 18

Cash at Bank 19

Liabilities(26-50)

Bills Payable 26



Posting:

The process of transferring of the debits and

credits from the journal to the ledger accounts is

called posting. Each amount in the debit column

of the journal is posted by entering it on the

debit side/column of an account in the ledger,

and each amount in the credit column of the

journal is posted by entering it on the creditside/column of an account in the ledger.



The Mechanics of posting:

JOURNAL Dr. Cr.

Cash A/c

To Capital A/c

(Being new capital introduced)

10,000

10,000

Rs. Rs.

Ledger

Cash AccountDr. Cr.Date Particulars Rs. Date Particular Rs.

1995 To Capital A/c 10,000

July 9



Dr. Capital Account Cr.

Date Particulars Rs. Date Particular Rs.

1995 By Cash A/c 10,000

July 9

Similarly in the Capital Account:



Balancing of Ledger Account:Balance is the sum necessary to

equalize the debit and credit totals of an

accounts in a ledger to balanced

ascertain the cumulative effect of the

entries on the accounts. The balance is

an accounting term which means the

difference between the two sides of an

account.



Where the total of debit side

exceeds the total of the credit side,

the account is said to have a d ebit

balance

Where the total of credit side

exceeds the total of the credit side,the account is said to have a cred it

balance



The following steps are followed for balancing

the accounts:

On a rough sheet of paper take the total of thetwo sides of the account concerned.

Compute the difference of the total of two sides

If the debit side total is more, put the difference

on the credit side amount column, by writingthe words in a particular column ³By Balance

c/d´. If the credit side total is more, put thedifference on the debit side amount column, bywriting the words in a particular column ³ToBalance c/d´.



After putting the difference in the appropriateside of the account, add both the sides of the

account. Draw a thin line above and below the

total.

Bring down the debit balance on the debit side

by writing the words in particular column" To

Balance b/d´. Similarly bring down the credit balance on the credit side by writing the words

in particular column " By Balance b/d´.



D

EFINITION OF TRIAL BALANCE

According to Carter , ³ Trial Balance

is the list of debit and credit balances ,

taken out from ledger . It also includes

the balances of cash and bank taken

from cash book´.



FEATURES OF A TRIAL BALANCE1) It is a list of balances of all ledger

accounts and the cash book .

2) It is just a statement , and not an

account

3) It is neither a part of double entrysystem , nor does it appear in the actual

books of accounts . It can be prepared at

any time during the accounting period .



5) It is always prepared on a particular

date and not for a particular period .

6) It is prepared to check the arithmetical

accuracy of the ledger accounts .

7) If the books are arithmetically accurate ,the total of all debit balances of a trial

balance will be equal to the total of all credit

balances .

8) A tallied Trial Balance is not a conclusive

proof of the accuracy of the books of

accounts



OBJECTIVES OF PREPARING

TRIAL BALANCE

1) To ascertain the arithmetical accuracy

of the ledger accounts .

2) To help in locating errors .

3) To obtain a summary of the ledger

accounts .

4) To help in the preparation of Final

Accounts .



PREPARATION OF A

TRIAL BALANCE

There are two methods for the

preparation of a trial balance ±

1) Balance Method

2) Total Amount Method



Trial Balance by Balance Method Trial Balance by Total Amount Method

1) A Trial Balance prepared by

this method shows the balancesof all the ledger accounts .

2) A trial Balance prepared by

this method considers only

those accounts which show a

balance . If an account shows

no balance , it is not included in

trial balance .

3) It can be prepared only

when all the ledger accounts

have been balanced .

A Trial Balance prepared by this

methos shows the total amounts of debit items and the credit items in

each ledger account instead of their

balances .

A Trial Balance prepared by this

method considers all the accounts in

the ledger .

It can be prepared immediately after

the completion of posting to the

ledger



TYPES OF ERRORS

1)Errors affecting Trial Balance

2) Errors not affecting the Trial

Balance



ERRORS NOT AFFECTING

TRIAL BALANCE

1) Errors of Complete Omission

2) Errors of Commission ± Errors of recording,

3) Compensating Errors

4) Errors of Principle

5) Errors of posting the correct amount in

the correct side but in the wrong account



Errors of Omission If a transaction is not recorded in the

books of account or a transaction

recorded in the journal is not posted inthe ledger.

Partial Omission

e.g. credit sales recorded in salesaccount but not in party account.



Errors of Comission Errors of Recording transaction is

incorrectly recorded in the books of originalentry

Errors in Casting when a mistake iscommitted in totaling.

Error of Posting information recorded in

journal incorrectly entered in the ledger



Error of PrincipleWhen a transaction is recorded incontravention of accounting principle.

e.g. expenditure on installation of machinery being treated as revenueexpenditure rather than capitalexpenditure.



Compensating ErrorsThose errors the effect of which isnullified by another error of equal

amount.e.g. Shyams account debited with Rs100 instead of Rs 1000 while Ramsaccount debited with Rs 1000 instead of Rs 100.

Journal Accounts to Trial Balance

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