Journal, Ledger & Trail Balance

Journal, Ledger & Trail Balance

JOURNAL & LEDGER

Types of Accounts

1. Personal Account- The accounts which are related with the persons and companies are called personal accounts. Ex. Ram A\C, Renu Pvt. Ltd. Co. etc.

2. Real Account- Real Accounts which are related with assets (excluding debt) are called real accounts.

Ex. Building A\C , Cash A\C , Goodwill A\C

3. Nominal Account- The accounts which are related with expenses & losses and incomes & gains are called nominal accounts. Ex. Salary A\C, Rent A\C etc.

Golden Rules \ Rules for Debiting and Crediting

A. Personal Account-

i. Debit the receiver.

ii. Credit the giver.

B. Real Account-

i. Debit what comes in.

ii. Credit what goes out.

C. Nominal Account-

i. Debit all expenses and losses.

ii. Credit all incomes and gains.

Journal-It is the book of original entry in which primary record of both aspects of a business transaction is recorded in order in which they arise i.e. in chronological order. A journal is called as books of original records or books of primary entries.

Ledger- For each and every item or group of items of similar nature, an account is opened in a separate

Book called ledger. A ledger is a set of accounts.

Trial Balance

Trial Balance- It is a statement in which debit and credit balances of all the accounts of the ledger including cash and bank balances (taken from cash book) are shown to test arithmetical accuracy of the books of the accounts.

Objectives-

1. It ensures the arithmetical accuracy of the books.

2. It helps to prepare final accounts.

3. Some mistakes are detected by trial balance.

4. It is just summary of the contents of the ledger.

Errors disclosed by the Trial Balance

1. Partial omission of posting an amount in ledger.

2. Wrong totaling of subsidiary books.

3. Errors in extraction of Trial Balance.

4. Debit or credit entries are not entered at all.

5. Same entry enters twice.

6. Debits are entered as credits and vice-versa.

7. Errors in calculating the balance of an account.

8. Balance of an account entered wrongly in Trial Balance.

9. Difference in amount between the entries.

Errors not disclosed by the Trial Balance

1. Errors of omission

2. Compensating Error

3. Errors of principles entering both aspects of transaction twice in the books of accounts.

4. Errors in entering a transaction on the correct side of a wrong account (errors of misposting)

5. Entering wrong account bin the books of original entry (errors of commission).

Suspense Account- If two sides of Trial Balance do not agree, it implies that there are certain one-sided errors in the books of account. If it is not possible to locate the errors, the amount of difference in Trial Balance is put in the account known as Suspense Account. If debit side of Trial Balance exceeds the credit side the difference in the Trial Balance is transferred to the credit side of the Trial Balance.