22408925 journal ledger trial balance ppt copy

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Recording of transactions

Journal, ledger and trial balance

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JOURNAL

• Journal is derived from the French word ‘Jour’ which

means a day.• It is a daily record of business transactions

• It is the book of original entry because transaction is

first written in the journal from which it is posted to the

ledger at any convenient time.• Journalising means recording a transaction in the

 journal and the form in which it is recorded is known as

 journal entry

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NECESSITY OF JOURNAL

Convenient recording of transaction

Maintaining and preserving the identity of 

transaction

 Ascertaining the true nature of transaction

Maintaining permanent record of 

information

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 Analysis of transactions

1. Which are the two accounts involved in thetransaction to be recorded?

2. Whether the two accounts involved in the

transaction are personal, real or nominal?3. What rules of debit and credit are applicable to

the accounts concerned?

4. Which account should be debited or credited?

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Format of journal

Date Particulars L.F. Debit

Rs.

Credit

Rs.

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FUNCTIONS OF JOURNAL

To analyse each transaction into debit and

credit so as to enable their posting in the

ledger 

To arrange transaction ,chronological i.e.

in order of date.

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LIMITATIONS OF JOURNAL

• Recording all the transaction in a journal requires:

1)writing down name of account involved

2)individual posting of each account debited and

credited

• Does not provide information on prompt basis

• Does not facilitate the internal check system since the journal can be handled only by one person

• Journal become bulky and voluminous

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LEDGER

•  A ledger account may be defined as a

summary statement of all the transactions

relating to a person, asset, expense or 

income which have taken place during agiven period of time and shows their net

effect.

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Format of Ledger 

Date Particulars J.F Amount

Rs.

Date Particulars J.F

.

 Amount

Rs.

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FEATURES OF LEDGER

• Book of principal entry

• Classified and summarized record

• Posting-Process of transferring the transactions from the

 journal to ledger 

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ADVANTAGES

•Transactions relating to a particular person, item or heading of expenditure or income are grouped in the concerned account at

one place.

• When each account is periodically balanced it reflects the net

position of that account.

• Ledger is the stepping stone for preparing Trial Balance - whichtests the arithmetical accuracy of the accounting books.

• Since the entries recorded in the journal are referenced into

ledger the possibility of errors of defalcations are reduced to the

minimum.

• Ledger is the destination of all entries made in journal or sub- journals.

• Ledger is the "store-house" of all information which

subsequently is used for preparing final accounts and financial

statements.

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Trial balance

• Trial Balance may be defined as a statementwhich contains balances of all ledger accountson a particular date.

•To check the accuracy of posting in the ledger astatement is prepared with two columns i.e. debitcolumn and credit column which contain debitbalances of accounts and credit balances of accounts respectively. Total of the two columnsare if equal, it means the ledger posting isarithmetically correct. This statement is calledTrial Balance.

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Features of trial balance

• Particular date

•  Agreement

• Arithmetical accuracy

• Errors

• Not conclusive

• Journalising and Ledger balances required

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Objectives

• To check arithmetic accuracy of books of 

accounts

• Completion of double entry system

• To detect errors

• Helps in making comparisons

• To facilitate preparation of financialstatements

• Helps in dealing with adjustments

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Preparation of trial balance

• Trial Balance is not an account. It is only a list or 

schedule of balances of ledger accounts

including cash and bank balances. It is prepared

on a particular date. The accounts having adebit balance are entered in the debit amount

column and credit balance accounts are entered

in the credit amount column. The totals of the

two sides of the accounts may also be used toprepare trial balance. The sum of each column

should be equal

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Standard

format of a trial balance

• Trial Balance of .................

as at .................(closing date)

Name of the

account

L.F. Debit

balance

Rs.

Credit

Balance

Rs.

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Methods for preparation of trial

balance• Total method

Trail balance is

prepared by taking

into account the totalsof debit and credit

balances of each

account recorded in

the ledger.

• Balances method

• Trail balance is made

on the basis of the

balances of theaccounts. it is also

known as net trial

balance.

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Advantages

• Correct ledger balance

• Helps in preparation of final accounts

• Arithmetical accuracy

• Errors are revealed

• If the total debit is not equal to the credit,

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Limitations

• Trial balance can be prepared only if 

double entry system is followed

• Certain errors are not disclosed by trial

balance

• Incorrect trial balance will lead to incorrect

final accounts

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Errors that can affect the Trial Balance:

• Errors of calculation

• Errors of omission of one entry

• Posting to the wrong side of an account

• Errors in amount

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Errors not revealed by the Trial Balance:

• Errors of Commission

• Errors of Omission

• Errors of Principle

• Compensating errors

• Errors of Original entry

•Complete Reversal of entries