JOURNAL TO TRIAL BALANCE

Course Lecturer: Md. Mizanoor Rahman Email: [email protected]

Journal
Introduction
An accounting process may be considered to be composed of two parts: (i) Recording phase and (2)
Summarizing phase. Journal is the first step of recording transactions. This lesson will deal with
different aspects of journal as to recording transactions therein. In fact accurate accounting statements
can be prepared only if transactions have been recorded properly.

Books of Original Entry and Journalizing Transactions

A) What is a Journal?
The book in which the information about each business transaction is initially recorded is called
journal. Thus it is a chronological (day-by-day) record of business transactions. The journal is a
permanent chronological record of the debits and credits resulting from transactions, together with all
necessary explanations of the transactions. So, the information recorded in journal relates to the dates
of transactions, the debit and credit change in specific "Ledger accounts" and a brief explanation of
the transaction. Since the journal is the accounting record in which transactions are first recorded, it is
also called the book of original entry or prime entry.
B) Why to Use Journal
Technically it is possible to record transactions directly to Ledger. But due to some specific
advantages, as detailed below, business firms keep books of original entry called journal.
i) Complete information as to transaction
In journal the debit and credit of a transaction is recorded together but when transactions are recorded
directly in ledger, the debits and credits are recorded in different accounts. Further, in journal a brief
explanation as to transaction is recorded.
ii) Chronological record
In journal transactions are recorded in day to day chronological order. Future and past reference thus
becomes helpful.
iii) Prevention of Errors
If transactions are recorded direct in the ledger errors may creep into which may be difficult or time
consuming to detect. But in journal, since the offsetting debits and credits for each transaction appear,
such errors are less likely to be occurred and if occur can be detected easily.
C) Journalizing
The process of recording a transaction in a journal is called journalizing. The procedure and steps in
journalizing can be summarized as follows:
i) Recording the Dates
(a) Year in inserted at top column of each page meant for date except when the year changes.
(b) Month is inserted on first line of Date column of each page, except when the month changes.
(c) Day is inserted in second line of Date column used for each transaction, regardless of number of
transactions during the day.
ii) Recording The Debit
Title of account to be debited is inserted at extreme left of the Description column and amount is
entered in the Debit column along that line.
iii) Recording the Credit
Title of account to be credited is inserted below the account debited, moderately indented, and the
amount is entered in the Credit column against that line.
iv) Ledger Folio (L.F)
The ledger folio column to the right of the description column, is not filled in when transactions are
recorded. In the ledger when debits and credits are posted from journal, the page number of the ledger
in which these accounts are appearing are listed in this column.
v) Writing explanation i.e. Narration

A brief explanation is written below each entry. Some accountants prefer that the explanation be
omitted if the nature of the transaction is obvious.
A specimen of journal is shown below:
Journal
Date
Description
Ledger
Debit
Credit
Folio
Tk.
Tk.

Example
Journalize the following transactions in the books of XYZ Ltd. for the month of January, 2000.
January 1 Started business with Tk.2,00,000 in cash as capital
"
2 Deposited to Bank Tk.1,20,000
"
5 Bought Office Furniture for Tk.20,00 & Paid cheque
"
5 Bought good with Tk.50,000 cash & Tk.40,000 on credit from Habib
"
8 Sold goods for cash Tk.25,000
"
10 Sold good on credit to Ali Tk.30,000
"
12 Paid Habib on account Tk.40,000
"
13 Paid for office stationery Tk.1,000
"
15 Received from Ali Tk.15,000
"
20 Paid Office rent Tk.20,000
"
25 Paid Electricity bill Tk.5,000
"
28 Received from Ali Tk.15,000
"
30 Paid Salary by cheque Tk.20,000
Solution:
XYZ Ltd.
Journal
Date
2000
Jan.
1
"
"
"

"
"

2
5
5

8
10

2000
Jan.

12

"

13

Particulars
Cash
Capital
Cash brought as capital
Bank
Cash
Cash deposited in to Bank
Furniture
Bank
Bought furniture and payment made through cheque
Purchase
Cash
Accounts Payable (Habib)
Purchase of good Tk.50,000 in cash and in credit
Tk.40,000
Cash
Sale
Cash sale made
Accounts Receivable (Ali)
Sales
Credit sale
Accounts Payable (Habib)
Cash
Cash paid to Habib
Stationery
Cash
Stationery purchased

L.F.

Debit
Tk.
2,00,000

Credit
Tk.
2,00,000

1,20,000
1,20,000
20,000
20,000
90,000
50,000
40,000
25,000
25,000
30,000
30,000
40,000
40,000
1,000
1,000

Date
"
15
"
"
"
"

20
25
28
30

Particulars
Cash
Accounts Receivable (Ali)
Cash receive on account
Office rent
Cash
Paid office rent
Electricity
Cash
Paid electricity bill
Cash
Accounts Receivable (Ali)
Cash received on account
Salary
Bank
Salary paid through cheque

L.F.

Debit
15,000

Credit
15,000

20,000
20,000
5,000
5,000
15,000
15,000
20,000
20,000

Ledger
Introduction
Information as reported on business papers, analysed & recorded in terms of debits and credits in
journal are transferred to accounts in the Ledger. The individual accounts appearing in the ledger is in
fact a summary of all the relevant transactions and the net result of this summary are used as a basic
for preparation of accounting statements. This lesson deals with all the relevant aspects of ledger
positing, balancing the accounts along with significance of balance of the accounts.

What is meant by Ledger

A Ledger account is a means of accumulating in one place i.e. account all the information about the
change in a specific asset, liability or in owners' equity. In other words, the book which contains the
accounts of a business in a classified form is called Ledger. For example, a ledger account titled cash
will provide a record of all cash receipts and payments along with balance. By keeping such account,
for instance, management can keep track of the cash available on a date for use and can also use the
account for planning and control. In such a context, it can be said that the book which contain all the
accounts of an enterprise is known as Ledger. Further, as the financial information pertaining to the
financial position of an enterprise emerge only from accounts that are maintained in Ledger, the
ledger is called the principal book or a book of final entry.

Form of Ledger Account

In general Ledger accounts are prepared in "T" form. Because of its similarity to the letter T, it is
known as a T account. A specimen of the "T" form is shown below:
Cash Account
Account No. ..........
Date

Particulars

Post.
Ref.

Debit
Amount

Date

Particulars

Post.
Ref.

Credit
Amount

Ledger Account, T Form

It may also be drawn in balance form which is also called running balance form. the specimen of this
type of form is shown below:
Cash Account
Account No. ..........
Date

Particulars

Post
.
Ref.

Debit

Credit

Debit
Balance

Credit
Amount

Ledger Account, Balance Form

Whatever the form is used for accounts, posting to accounts from journal should be made in
chronological order. Moreover, posting should be made on a timely basis to ensure that the ledger is
up-to-date. Particulars/explanation column shows why the particular account is debited or credited.
The reference column refers to the source of posting showing the journal page. This helps verifying
whether posting is made correctly or not. In case of 'T' account, balance of an account can be found
out usually at the end of an accounting period. For this balancing of accounts is done by transferring
the higher difference in the totals to the other side of the account. Whereas, in the case of Balance
Form form, the balance is found out at the end of each posting to the account. So, an account in the

ledger shows all information relating to that explaining the reasons for increases and decreases in the
account and ultimately the final balance. As such ledger is called the king of all books.

Steps for Ledger Posting

In ledger accounts particulars of a specific account be transferred to that account from records made
in the Journal. In this context the following steps can be taken:
i) Find out the account to which posting will be made from Journal.
ii) Find out the debit or credit particulars of account and transfer debit to the debit side of the account
and vice-versa.
iii) Write the date in the date column of Ledger account when the transaction occurred.
iv) Write the positing reference in ledger account as to number or page of the Journal
v) Balance the account.

Determining Balance of an Account

The balance of a ledger account is the difference between the total amount, of debit and credit of an
account.
In fact every Ledger Account is divided into two sides. The left-hand side is known as the Debit Side
and the right-hand side as the Credit Side. If the total of the debit side of any Account in the Ledger is
greater than that of its credit side. the Account is said to have a Debit Balance to the extent of such
difference. In case the credit side of any Account is greater than its debit, the difference is called
Credit Balance.
A Debit Balance of any Account may represent either an asset or an expense. If such balance relates to
a Personal Account or a Real Account, it is an asset; in case it relates to a Nominal Account it is an
expense or a loss. A Credit Balance of any Account represents either a liability or a gain. If such
balance relates to a Personal Account, it is a liability; if it relates to a Nominal Account, it is a gain.
The "normal balance" of an account would be as follows:
i) Asset = Debit balance
ii) Liability = Credit balance
iii) Expense - Debit balance
iv) Income = Credit balance
Occasionally, it may be seen that an asset account temporarily shows a credit balance, either as the
result of an accounting error or because of an unusual transaction. For example, an account receivable
may acquire a credit balance because of an over payment by a customer. But if it is seen that a
building account is showing credit balance, it can be assumed that there is an error in account.

Proper Grouping of Ledger Accounts

To obtain optimum result from the Ledger with out any inconvenience and delay, it is essential that
these various accounts be arranged and grouped together in some intelligent manner. So the accounts
of customers should be opened in one section of the Ledger, and similarly, the accounts of the
suppliers. The asset accounts should also be grouped together, and the nominal accounts should form
a different section of the Ledger.
However, in practice, it is seen that accounts are arranged in the ledger in financial statement order i.e.
assets first, followed by liability, owners equity, income and expenses. A chart of accounts are used
for reference. The number, for example may be: 01-30 for assets, 31-50 for liability, 51-60 for equity,
60-80 for income and 81 to 100 for expenses etc.

Sub-division of the Ledger

So far as a small business is concerned, it would not be difficult to accommodate the whole of the
transactions of the business in one Ledger. But with the increase of business activities and financial
transactions, as the transactions become voluminous, the Ledger will have to be sub-divided and the
sub-division may be made in the following manner. Thus, there may be:(a) A Debtors' Ledger or Customers' Ledger or Sales Ledger to keep records of the accounts of
customers only;
(b) A Creditors' Ledger or Suppliers' Ledger or Purchases Ledger to contain accounts of suppliers of
goods;

(c) An Impersonal Ledger or a Nominal or General Ledger which would cover all accounts other than
those of customers and suppliers; and
(d) A Private Ledger which contains Capital Account and Drawings Account of the proprietor or each
of the partners. This ledger embodies accounts of private nature.
Example
From the following particulars of ABC Ltd. prepare Journal entries and Ledger accounts of the
company for the period.
Year 2000
April : 2 Started business with Tk.1,00,000, paid into Bank Tk.50,000
3 Bought Furniture in cash Tk.10,000
5 Bought goods for Tk.30,000
8 Sold goods for cash Tk.16,000
15 Bought Type writer from R & Co. Tk.18,000
20 Bought goods from D & Brothers Tk.25,000
25 Sold goods to XYZ Ltd. Tk.24,000
27 Paid Advertisement Tk.5,000
28 Paid Rent and Salaries Tk.10,000 and 20,000 respectively.
30 Withdraw from Bank Tk.20,000
30 Sold goods to XYZ Tk.10,000 and received cash Tk.26,000
Solution
Journal
Date
200
0
Apri
l

Particulars
2
2
3
5
8
15

20
25
27
28
28

Cash Account
Capital Account
Cash brought in to start business
Bank Account
Cash Account
Cash deposited with bank
Furniture Account
Cash Account
Furniture bought for cash
Purchase Account
Cash Account
Goods bought in cash
Cash Account
Sales Account
Goods sold for cash
Typewriters Account
Payable for Typewriter -R &
Co.
Typewriters bought on credit
Purchase Account
Account Payable (D & Broths)
Credit purchase
Account Receivable (XYZ )
Sales Account
Credit Sales
Advertisement Account
Cash Account
Paid for advertisement
Rent Account
Cash Account
Paid rent in cash
Salaries Account
Cash Account
Salaries paid in cash

P.R
.
01
15

Dr.
Amount
Tk.
1,00,000

Cr.
Amount
Tk.
1,00,000

02
01

50,000

03
01

10,000

04
01

30,000

01
07

16,000

01
18

18,000

09
19

25,000

25
07

24,000

12
01

5,000

13
01

10,000

14
01

20,000

50,000
10,000
30,000
16,000
18,000

25,000
24,000
5,000
10,000
20,000

Date

Particulars
30
30
30

Cash Account
Bank Account
Cash with drawn for office
Account Receivable (XYZ )
Sales Account
Credit Sale
Cash Account
Account Receivable (XYZ )
Cash received

P.R
.
01
02

Dr.
Amount
20,000

Cr.
Amount
20,000

25
07

10,000

01
25

26,000

10,000
26,000

ABC Ltd.
Ledger Accounts
Cash Account
Date
2000
April 2
8
30
30

Particulars
Capital
Sales
Bank
A/R- XYZ Ltd.

May-1 Balance b/f

Ref. Amount Date

Taka
2000
15
1,00,000 April 2
07
16,000
3
02
20,000
5
25
26,000
27
28
28
30
162,000

Particulars

Ref.

Bank

02

Furniture
Purchase
Advertisement
Rent
Salaries
Balance c/d

03
09
12
13
14

May-1 Balance b/f

Ref. Amount
Taka
01
50,000

Date
Particulars
2000
April Cash
30
30 Balance c/d

Ref.
01

May-1 Balance b/f

Ref. Amount
Taka
01
10,000

Date
Particulars
2000
April Balance c/d
30

Ref.

10,000
10,000

May-1 Balance b/f

Ref. Amount
Taka
18,000

Date
Particulars
2000
April Balance c/d
30

Ref.

18,000
18,000
Ref. Amount
Taka
50,000

Code- 04
Amount
Taka
18,000
18,000

Sales Account
Date
Particulars
2000
April Balance c/d
30

Code- 03
Amount
Taka
10,000
10,000

Type Writer Account

Date
Particulars
2000
April Payable for Type Writer
15

Code- 02
Amount
Taka
20,000
30,000
50,000

50,000
30,000

Furniture Account
Date
Particulars
2000
April - Cash
3

10,000
30,000
5,000
10,000
20,000
37,000
1,62,000

37,000

Bank Account
Date
Particulars
2000
April - Cash
2

Code- 01
Amount
Taka
50,000

Date
Particulars
2000
April- Cash
8
25 Account receivable
-XYZ

01

Code- 07
Amount
Taka
16,000

25

24,000

Ref.

31 Account receivable
-XYZ

25

50,000
May-1 Balance b/f

Purchase Account
Date
Particulars
2000
April- Cash
5
20 Acct. payable -D &
Broths

May-1 Balance b/f

Ref. Amount
Taka
01
30,000
19

Date
Particulars
2000
April Balance c/d
30

Ref.

May-1 Balance b/f

55,000
55,000

55,000

Ref. Amount
Taka
01
5,000

Date
Particulars
2000
April Balance c/d
30

Ref.

5,000
5,000
Ref. Amount
Taka
01
10,000

Date
Particulars
2000
April Balance c/d
20

Ref.

10,000
May-1 Balance b/f

May-1 Balance b/f

10,000

Ref. Amount
Taka
01
20,000

Date
Particulars
2000
April Balance c/d
30

Ref.

20,000
20,000

Ref. Amount
Taka
1,00,000

Date
Particulars
2000
April- Cash
2

Ref.
01

1,00,000

Code- 15
Amount
Taka
1,00,000
1,00,000

May-1 Balance b/f

Date
Particulars
2000
April Balance c/d
30

Code- 12
Amount
Taka
20,000
20,000

Capital Account
Date
Particulars
2000
April Balance b/f
30

Code- 13
Amount
Taka
10,000
10,000

Salaries Account
Date
Particulars
2000
April Cash
28

Code- 12
Amount
Taka
5,000
5,000

Rent Account
Date
Particulars
2000
April Cash
28

50,000
50,000
Code- 09
Amount
Taka
55,000

25,000

Advertisement Account
Date
Particulars
2000
April Cash
27

10,000

Payable for Typewriter (R & Co.) Account

Ref. Amount Date
Particulars
Taka
2000
18,000 April Typewriter
15
18,000
May-1 Balance b/f

1,00,000

Ref.

Code- 18
Amount
Taka
18,000
18,000
18,000

Account Payable (D & Broths) Account

Code- 19
Date
Particulars
Ref. Amount Date
Particulars
2000
Taka
2000
April Balance c/d
25,000 April Purchase
30
20

Ref.
09

25,000

Amount
Taka
25,000
25,000
25,000

May-1 Balance b/f

Account receivable XYZ Ltd. Account
Code- 25
Date
Particulars
Ref. Amount Date
Particulars
2000
Taka
2000
April Sales
07
24,000 April Cash
25
30
30 Sales
07
10,000
30 Balance c/d

Ref.
01

Amount
Taka
26,000
8,000

34,000
34,000
May-1 Balance b/f
8,000
Attention: In this illustration accounts have been coded as: Balance items assets 01 for cash, 02 for Bank, etc.
Like wise revenue & expenditure items have been coded as 07 for sales, 09 for purchase, 12 for advertisement
and the like. Thus in Journal post references have been sited against the accounts and in Ledger these have also
been shown. This is found in practice.

Summary Illustration of Journalizing and Posting

Example
On 1st October, 1999 Mr. John entered into a business. Transactions for the month were as follows:
October 1: John invests Tk.10,000 cash in an advertising venture to be known as the
Poineer Advertising Agency.
"
1: Office equipment costing Tk.5,000 is purchased by signing a 3-month, 12%
Tk.5,000 note payable.
"
2: Tk.1,200 cash advance is received from R. Knok a client, for advertising
services that are expected to be completed by December 31.
" 3: Office rent for October is paid in cash, Tk.900
" 4: Tk.600 is paid for a one year insurance policy that will expire next year on
September 30.
" 5: An estimated 3-month supply of advertising materials is purchased on account
from Aero Supply for Tk.2,500
"
9: Hire four employees to begin work on October 15. Each employee is to receive
a Weekly salary of Tk.5000 for a 5-day work week, payable every 2 weeks first payment made on October 26.
" 20: John withdraws Tk.500 cash for personal use.
" 26: Employee salaries of Tk.4,000 are owed and paid in cash
" 31: Received Tk.10,000 in cash from Copa Company for advertising services
rendered in October.
Enter the transaction in Journal and Post them to Ledger which is kept in Balance form.

Solution
Books of Mr. John
General Journal
Date
Account Titles and Explanation
1996
October 1 Cash
Capital
(Invested cash in business)
1 Office Equipment
Notes Payable
(Issued three-month, 12% note for office

Ref.

Debit

1
40

10,000

15
25

5,000

Credit
10,000
5,000

Date
2

3
4

20
26
31

Account Titles and Explanation

equipment)
Cash
Unearned Fees
(Received advance from R. Knok for future
services)
Rent Expense
Cash
(Paid October rent)
Prepaid Insurance
Cash
(Paid one-year policy; effective date, October
1)
Advertising supplies
Accounts Payable
(Purchased supplies on account from Aero
supply)
Drawing
Cash
(Withdrew cash for personal use)
Salaries Expenses
Cash
(Paid salaries to date)
Cash
Fees Earned
(Received cash for fees earned)

Ref.

Debit

1
28

1,200

62
1

900

10
1

600

8
26

2,500

41
1

500

60
1

4,000

1
50

10,000

Credit
1,200

900
600

2,500

500
4,000
10,000

Books of Mr. John

General Ledger
Cash
Date
1996
October 1
2
3
4
20
26
31

Explanation

Date
1996
October 5

Explanation

Date
1996
October 4

Explanation

Date
1996
October 1

Explanation

Date
1996
October 1

Explanation

Date

Explanation

Ref.

Debit

J1
J1
J1
J1
J1
J1
J1

10,000
1,200

Credit

900
600
500
4,00

Advertising Supplies
Ref.

Debit

J1

2,500

Credit

J1

Debit

Credit

600

Debit

J1

5,000

Credit

Debit

J1

Credit

No. 25
Balance

5,000

5,000

Credit

No. 26
Balance

Accounts Payable
Ref.

Debit

No. 15
Balance
5,000

Notes Payable
Ref.

No. 10
Balance
600

Office Equipment
Ref.

10,000
11,200
10,300
9,700
9,200
5,200
5,200
No. 8
Balance
2,500

Prepaid Insurance
Ref.

No. 1
Balance

1996
October 5

J1

2,500

2,500

Credit

No. 28
Balance

1,200

1,200

Credit

No. 41
Balance

10,000

10,000

Credit

Balance

Unearned Fees
Date
1996
October 2

Explanation

Date
1996
October 1

Explanation

Date
1996
October
20

Explanation

Date
1996
October
31

Explanation

Date
1996
October
26

Explanation

Date
1996
October 3

Explanation

Ref.

Debit

J1

Capital
Ref.

Debit

J1

Drawing
Ref.
J1

Debit
500

500

Fees Earned
Ref.

Debit

J1

Credit

No. 50
Balance

10,000

10,000

Credit

No. 60
Balance

Salaries Expense
Ref.

Debit

J1

4,000

4,000

Rent Expense
Ref.
J1

Debit
900

Credit

No. 62
Balance
900

Trial Balance
Introduction
Since equal amount of debits and credits are entered in the accounts for every transaction, the sum of
all the debits in the ledger accounts must be equal to the sum of all the credits. If computations and
recording have been accurate such total of debits must agree with total of credits. Before accounting
statements are prepared such proof of accuracy as to recording may proceed through the preparation
of a Trial Balance. This lesson deal with the different aspects of the preparation of Trial Balance.

What is meant by Trial Balance

Before preparing financial statements at the end of an accounting period and using the accounts
balances to that end, it is desired that a proof that the total of debit accounts balances is equal to the
total of credit balances is made. The proof that is made in a sheet of paper by balances of all the
accounts is called a Trial balance. Trial balance may also be defined as a statement of debit and credit
balances extracted from the ledger with a view to prove the arithmetical accuracy of books. Below is
an example of a trial balance based on the balances of accounts shown is ledgers of ABC Ltd.

Trial Balance
Sl.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Title of Account
Cash Account
Bank Account
Furniture Account
Type writer Account
Sales Account
Purchase Account
Advertisement Account
Rent Account
Salaries Account
Capital Account
Account Payable (R & Co.)
Account Payable (D & Brothers)
Account Receivable (XYZ Ltd)
Total

L.F.

Debit
Taka
37,000
30,000
10,000
18,000

Credit
Taka

50,000
55,000
5,000
10,000
20,000
1,00,000
18,000
25,000
8,000
1,93,000

1,93,000

Preparation of a Trial Balance

After the posting of transactions in particular accounts of a ledger, the debit and credit side of each
ledger account would be added up in order to find out balance, if any, of that account. The balance of
the accounts would then be entered in a Trial balance. Trial balance of totals could be taken by listing
in parallel columns the total of the debits and the total of the credits of each account. In general a trial
balance is prepared in a loose sheet, rules almost similarly as journal. It will have five columns viz.,
no or the serial code no of accounts, particulars or accounts title column, ledger folio columns and
debit and credit column. All debit balances will be entered in debit column and credit balances in
credit column. If the books are arithmetically correct, then the total of debit column must agree with
the total of credit column.

Usefulness of Trial Balance

A trial balance provides a proof that the ledger is in balance indicating the following:
i) Equal debits and credits have been recorded for all transactions
ii) Balance of each account in the ledger has been correctly computed.
iii) Posting to a trial balance of the accounts has been rightly performed.
iv) That is there is an arithmetical accuracy of the Journal and ledger.
However, a trial balance will not agree if there is an error in totaling the two columns or there are
mistakes with regard to the following:
i) Mistake is transferring figure of the balance of an account - balance wrongly written.

ii) Mistake as to omission regarding transferring the balance of an account.

iii) Mistake is totaling of subsidiary books.
iv) Mistake is posting in wrong side.
v) Mistake in posting to the ledger account, etc.

Limitations of Trial Balance

A Trial Balance is, not a conclusive proof of the arithmetical accuracy of the postings. A Trial Balance
may agree and yet there may exist some errors in the books remaining undisclosed.
The following are those errors which may remain undetected even with the agreement of a Trial
Balance:(1) Omission of an entry in the Journal i.e., Books of original Entry: If an entry has not been made
in a subsidiary book, both the debit an credit of that transaction would be omitted and thus the
agreement of the Trial Balance will not be affected.
(2) A wrong entry in the Original Book: If a credit sale of Tk.45 is wrongly entered as Tk.54. Such an
error will not be revealed by the Trial Balance.
(3) Errors of Commission: If Abu's Account has been debited instead of Habu's account, the Trial
Balance will not detect such an error.
(4) Compensating Errors: Some errors may arise from the over or under-debits of Accounts being
neutralised by the over or under credits to the same extent of some other accounts. For example, an
ledger posting of Tk.50 to the debit may be compensated by one or two posting totaling Tk.50 in
credit.
(5) Errors of principle: If there is fundamental errors as to the treatment of account i.e. treating a
revenue expenditure as capital, this error is of principle and would not be detected in Trial balance.

Discovery of Errors
If a trial balance does not agree as to debit and credit total, it will be presumed that there is an error
and will have to be detected.
The following steps may be taken to locate errors in Trial Balance.
1. Re-check the totals of the Trial Balance including the lists of Debtors and Creditors and ascertain
the exact amount of the difference.
2. Check the inclusion of Cash or Bank Balance in the Trial Balance from being omitted.
3. Check that the opening balances have been correctly brought forward in the current year's books.
4. See there is no mistake in balancing the account
5. Recheck the totals of subsidiary books, specially 1, 10, 100 and so on.
6. Find out exact difference. Look for such accounts, divide the difference by 2 and this figure may be
checked as to the fact that this has been wrongly written in debit column instead of credit.
7. When the difference happens to be of an amount which constantly recurs in the books, all the
postings of this amount may be checked to advantage.
8. Compare the Subsidiary Records to trace unposted items and check the carry forwards.
Simultaneously scrutinise badly written and indistinct figures.
9. When the difference is of a large amount, it would not be a bad plan to compare the Trial Balance
with that of the previous year, in order to ascertain whether the figures under the different heads of
accounts are very near the same as those of the previous year and whether their balances fall on the
same side of the Trial Balance.
10. If the difference is still not traced, posting of accounts will have to be checked.

Normal balance
The account serves as a mathematical device for recording increases and decreases in monetary terms.
The rules of debit and credit and the normal balances of the various types of accounts are summarized
below. An idea as to these will help preparation of trial balance and detect errors there to:

Type of Account
Increase
Decrease
Normal Balance
Asset
Debit
Credit
Debit
Liability
Credit
Debit
Credit
Capital
Credit
Debit
Credit
Drawings
Debit
Credit
Debit
Revenue
Credit
Debit
Credit
Expense
Debit
Credit
Debit
In practice, when an account that normally has a debit balance actually has a credit balance, or viceversa, it is an indication of an error in recording or of an unusual transaction.

Example
Following are the ledger balances of Modern Enterprise as on 3-6-2000. Prepare a Trial balance as on
that date.
Bank 20,000; Cash 5,000; Accounts Receivable 4,600; Accounts payable 5,000; Advertising supplies
5,000; prepaid insurance 3,000; Furniture 20,000; office equipment 2,500, unearned fees 2,200, Notes
payable 5,000, Common stock 36,000, Retained earnings and reserve 10,400, Rent 12,400; Salaries
12,100; Dividend 2,000, Fees earned 28,000.

Solution
Modern Enterprise
Trial Balance
30th June, 2000
Sl.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

Particulars
Cash
Bank
Accounts Receivable
Advertising supplies
Prepaid Insurance
Furniture
Office Equipment
Notes Payable
Accounts Payable
Unearned Fees
Common Stock
Retained Earnings & Reserve
Dividends
Fees Earned
Salaries Expenses
Rent Expenses

L.F.

Debit
(Taka)
5,000
20,000
4,600
5,000
3,000
20,000
2,500

Credit
(Taka)

5,000
5,400
2,200
36,000
10,400
2,000
28,000
12,100
12,400
86,600

86,600

Example
The following transactions occurred during July 2000 to Sagar Ltd. prior to the company beginning its
regular business operations:
Year 2000
July 1 : Issued Tk.15,000 shares of capital stock to the owners of the company for
Tk.3,00,000 each
5 : Purchased Land for building Office & factory of the Company worth
Tk.2,00,000. A down payment of Tk.50,000 was made and a note payable was
issued for the balance
15 : Purchase a small portable Building as temporary Office for Tk.1,00,000 is cash
including Tk.10,000 as installation cost.
25 : Purchased Office equipment worth Tk.20,000 on credit for Nadia Enterprise.
30 : Paid Tk.5,000 owed to Nadia Enterprise

Instructions:
a) Prepare journal entry
b) Post to ledger
c) Prepare Trial balance on July 31, 2000.

Solution
Sagar Ltd.
Journal
Date
200
0
1
July
5

15
25
30

Particulars

L.F.

Cash
Capital stock
Issued 15,000 shares for cash
Land
Cash
Notes payable
Paid part cash and issued note payable
for purchase of land
Building
Cash
Purchased portable building for cash
Office Equipment
Payable for Equipment
Credit purchase of equipment
Payable for Equipment
Cash
Part payment to Nadia enterprise

Debit
Tk.
1,50,000

Credit
Tk.
1,50,000

2,00,000
50,000
1,50,000
1,00,000
1,00,000
20,000
20,000
15,000
15,000

Sagar Ltd.
General Ledger
Cash Account
Dr.
Date
Particulars
2000
July - Capital Stock
1

Ref. Amount
Taka
3,00,000

Date
2000
July 5
15
30
31

Particulars

Ref.

Land
Building

1,00,000
15,000
1,35,000
3,00,000

Payable for Equipment

Balance

3,00,000
Aug.-1 Balance

Cr.
Amount
Taka
50,000

1,35,000

Office Equipment
Dr.
Date
Particulars
2000
July- Payable for Equipment
25
Aug. Balance
-1

L.F. Amount
Taka
20,000

Date
Particulars
2000
July- Balance
31

L.F.

50,000
20,000

Cr.
Amount
Taka
20,000
50,000

Notes Payable
Dr.
Date
Particulars
2000
July Balance
31

L.F. Amount
Taka
1,15,000

Date
Particulars
2000
July 5 Land

1,15,000
Aug. 1 Balance

Nadia Enterprise

L.F.

Cr.
Amount
Taka
1,50,000
1,15,000
1,50,000

(Accounts Payable)
Dr.
Date
Particulars
2000
July Cash
30
31 Balance

L.F. Amount
Taka
15,000

Date
Particulars
2000
July Office Equipment
25

L.F.

5,000
20,000

Cr.
Amount
Taka
20,000
20,000
5,000

Aug. 1 Balance

Capital Stock
Dr.
Date
Particulars
2000
July Balance
31

L.F. Amount
Taka
3,00,000

Date
Particulars
2000
July 1 Cash

3,00,000

L.F.

Cr.
Amount
Taka
3,00,000
3,00,000
3,00,000

Aug. 1 Balance

Sagar Ltd.
Trial Balance
July 31, 2000
Sl.
No.
1.
2.
3.
4.
5.
6.
7.

Particulars
Cash
Land
Building
Office Equipment
Notes Payable

L.F.

Debit
(Taka)
1,35,000
2,00,000
1,00,000
20,000

Payable for Equipment

Capital Stock
4,55,000

Credit
(Taka)

1,50,000
5,000
3,00,000
4,55,000

Questions
Self Test Questions
1.
Which of the following statements about accounting process is correct :
(a) The journal shows in one place all information about specific transactions related to
particular account
(b) The journal is arranged in chronological order
(c) A Ledger account shows in one place all information about change in specific asset or
liability or in owner's equity.
(d) Posting is the process of transferring debit change in account balance from ledger to journal
(e) Trial Balance is the balance and final accounting statement.
2.
Which of the following account will show normal credit balance?
(a) An asset (b) A drawing (c) A Revenue (d) An Expense
3.
A receipt of cash from customers in payment of their accounts would be recorded by a:
(a) A debit to cash credit to accounts receivable
(b) A debit to accounts payable credit to cash
(c) A debit to accounts receivable and credit to cash
(d) A debit to cash and credit to accounts payable.
4.
A payment of cash for the purpose of merchandise would be recorded in the :
(a) Purchase Journal (b) Cash Payment Journal (c) Sales Journal (d) Cash Receipt Journal
5.
The form listing the balances and titles of accounts in the ledger on a give data is the :
(a) Income Statement (b) Capital Statement (c) Retained Earning Statement (d) Trial Balance

6.

On 30th June ......., the ledger of Full Moon Ltd. Consists of the following:
Office equipment
Accounts Receivable
Accounts payable
Salaries payable
Retained earning

Tk.
27,800;
21,000
15,700
9,600
22,500

Capital Stock
Automobile
Cash
Supplies

Tk.
20,000
9,500
6,900
2,600

A trail balance prepared on that shows credit column total as:

(a) 67,800 (b) 93,100 (c) 25,300 (d) 65,300
Which one is correct?

Discussion Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

What is meant by journal? Why to use journal? State the process of journalizing.
What is meant by special and general journals? Give description of the special journals that are
generally used in business houses.
What is a ledger? Classify it and narrate its advantages.
Indicate the steps needed for recording business transactions from journal to ledger.
Distinguish between: (i) Journal and Ledger; (ii) Account and Ledger.
What is a trial balance? Why is it prepared? Has it got any limitations?
Why will a trial balance not agree? What steps will you take to locate errors indicated by nonagreement of a trial balance?
Is agreement of trial balance a conclusive proof that there are no errors in the books of
accounts? Give reasons with suitable example in support of your answer.
Does the debit mean increase and credit mean decrease? Explain.
Dolphin products maintain special Books of Original Entry. State the books in which each of
the following transactions should be recorded:
i)
Purchase of official supply on account
ii)
Replenished the petty cash fund
iii) Issue a Note to a creditor
iv) Allowance for Bad debt
v)
Purchased merchandise for cash
vi) Paid the payroll
vii) Sale of capital stock
viii) Recording depreciation for the month on machine
ix) Sale of product on account
x)
Traded in delivery equipment for new equipment

Exercises
1.

2.

For each of the following transactions, indicate whether the account in parentheses should be
debited or credited and give the reasons for your answer.
i)
Purchased Building for cash (cash)
ii)
Purchased a typewriter on credit, promising to make payment with 30 days (Accounts
payable)
iii) Sale of photocopier (old) on 15 days credit (office equipment)
iv) Obtained a loan of Tk.50, 000 from a bank (cash)
v)
Issue of capital stock to the owners of a corporation in exchange for investment of
Tk.1,00,000 cash (capital stock)
Record the following transactions completed during the month of May of the current year in a
two-column journal in the Books of Kirmini:

2000
May 1.
2.
8.
10.
15.
20.
24.
29.
30.
31.
31.

Paid rent for the month Tk.4500

Purchased office equipment on account Tk.8,000
Paid cash for supplies, Tk.400
Paid advertising expense, Tk.775
Received cash from customers on account, Tk.8,9000
Paid creditor on account Tk.1,500
Withdrew cash for personal use Tk.7,000
Paid telephone bill for the month Tk.520
Fees earned and billed to customers for the month, Tk.11,800
Paid for repairs to office equipment Tk.650
Paid electricity bill for the month Tk.1,100

3.

East-West traders had the following transactions for the month of January, 2000.
2000
Jan. 1. Paid office rent Tk.2,200
5. Purchased equipment on account Tk.35,000
10. Received cash from Hasan for Sale of good Tk.50,000
12. Paid cash to creditors on account 17,500
18. Paid cash for renewal of property Insurance Tk.5,000
19. Cash Sale Tk.4,000
25. Purchased goods on account from Raihan Tk.60,000
28. Paid cash from business bank account for personal and family expenses Tk.6,000
29. Paid electricity bill Tk.3,500
30. Paid Telephone expenses Tk.6,500
30. Paid Raihan Tk.59,500 in full settlement of account
Pass entries in books of original entry and post them to ledger.

4.

Mr. Tin Kari established a travel agency tited "Ureka" on April 1, 2000. The following
transactions were completed during the month:
2000
April 1 : Invested Tk.20,000 cash in State Bank in the name of the agency.
" 2 : Paid Tk.400 cash for April office rent
" 3 : Purchased office equipment for Tk.2,500 cash
" 4 : Incurred Tk.300 of advertising costs in the Tribune, on account
" 5 : Paid Tk.600 cash for office supplies
" 6 : Earned Tk.9,000 for services rendered: Cash of Tk.1,000 is received from
customers, and the balance of Tk.8,000 is billed to customers on account.
" 7 : Withdrew Tk.200 cash for personal use.
" 8 : Paid Tribune amount due in transaction dated April 4.
" 9 : Paid employees salaries, Tk.1,200
" 10: Received Tk.8,000 in cash from customers who have previously been billed in
transaction dated April 6.
Required: Journal entries for the above transactions.

5.

Hallo established a sole proprietorship, to be known as Thomas Decorators, on July 16 of the

current year. During the remainder of the month she completed the following business
transactions:
July 16. Hallo transferred cash from a personal bank account to an account to be used for
the business, Tk.5,000.
16. Purchased equipment on account, Tk.750.
16. Purchased supplies for cash, Tk.175.
17. Paid rent for period of July 16 to end of month, Tk.350.

18. Purchased a truck for Tk.9,000, paying Tk.1,500 cash and giving a note payable
for the remainder.
19. Received cash for job completed, Tk.400.
22. Purchased supplies on account, Tk.125.
23. Paid wages of employees, Tk.600.
23. Paid premiums on property and casualty insurance, Tk.415
25. Paid creditor for equipment purchased on july 16,Tk.750.
26. Recorded sales on account and sent invoices to customers, Tk.3,750.
29. Received cash for job completed , Tk.410. This sale had not been recorded
previously.
29. Received an invoice for truck expenses, to be paid in August, Tk.92.
30. Paid utilities expense, Tk.105.
30. Paid miscellaneous expensed,Tk.45.
31. Received cash from customers on account, Tk.2,250.
31. Paid wages of employees, Tk.650.
31. Withdrew cash for personal use,Tk.750.
Instructions:
(1) Open a ledger of two-column accounts for Hallo Decorators, using the following titles and account
numbers: Cash, 11; Accounts Receivable, 12; Supplies, 13; prepaid Insurance, 14; Equipment, 16;
Truck, 18; Notes payable, 21; Accounts payable, 22; Joyce Thomas, Capital, 31; Joyce Thomas,
Drawing, 32; Sales, 41; Wages Expense, 51; Rent Expense, 53; Utilities Expense, 54; Truck Expense,
55; Miscellaneous Expense, 59.
(2) Record each transaction in a two column journal, referring to the above list of accounts or to the
ledger in selecting appropriate account titles to be debited and credited. (Do not insert the account
numbers in the journal at this time.)
(3) Post accounts from journal to the ledger, inserting appropriate posting references as each item is
posted.
6.

Mr. J. Carter provides you the following Ledger Balance particulars. Prepare a Trial Balance as
at 31st Dec. 1999 at the end of his accounting year.

Capital
Goodwill
Furniture
Freehold land &Building
Machinery & Plant
Secured loan at 8% interest
Return inward
Debtors
Creditors
Bills Receivable
Bank Balance
Discount allowed
Discount received
Bad debts
Interest on loan

7.

Tk.
1,80,000
50,000
30,000
47,000
30,000
30,000
1010
45,000
16,000
18,000
14,000
600
1,120
1,500
1,800

Tk.
Stock (1-1-99):
Raw materials
Partly manufactured goods
Finished goods
Purchase of raw Materials
Sales
Bills payable
Manufacturing wages
Freight and cartage
Factory expenses
Salaries & Allowance
Repairs & Renewals
Wages outstanding

22,000
8,000
16,000
88,000
1,85,010
15,000
32,000
1,000
9,000
9,200
4,000
450

In addition to the above information (Exercise-6) as to ledger balances, following additional

information supplied. Give adjusting entries for the following and draw up an Adjusted Trial
Balance thereof:

i)
ii)
iii)
iv)
8.

Closing stock of raw materials Tk.20,000; Stock of partly manufactured goods Tk.4,000;
Stock of finished goods Tk.14,380.
Interest is to be provided on secured loan for full year.
Depreciation on plant and machinery is to be provided @ 10%.
A provision of 3% on Debtors is to be provided for Bad and doubtful debts.

From the following balances of Mr. Robin prepare (i) a Trial balance, (ii) give adjusting entries
and (iii) draft an Adjusted Trial balance.
Capital
Cash
Accounts Receivable
Accounts payable
Purchase
Sales
Purchase returns
Sales Return
Notes payable
Furniture

2,60,000
10,000
90,000
26,000
32,000
3,70,000
5,000
1,200
5,000
20,000

Stock (Opening)
Office expenses
Insurance
Rent
Salaries (1/4th sales section)
Drawings
Advertisement
Freight
Building
Note Receivable

15,000
5,400
1,000
1,200
6,400
1,800
10,000
4,000
1,60,000
20,000

The following adjustment for the year ended on 31st December, 1999 are to be made:
i) Stock at closing Tk.60,000 (ii) Accrued salaries Tk.2,000 (iii) Unexpired Insurance Tk.400 (iv)
Accrued Rent Tk.800, (v) Depreciation @ 5% on Building & 10% on Furniture is required. (vi)
Goods costing Tk.500 was taken by Mr. Robin for personal use (vii) The stock at the end included
goods worth take 2,000 for which the bill neither has been received and nor accounted for.
9.

Following are the transactions of Zebra enterprise for the month of May, 2000. Enter these in
the Books of Original entry of the enterprise assuming that it keeps Special and General journal:
2000
May 1: Purchase from X Ltd. Goods worth Tk.50,000
1: Drawn from Bank Tk.50,000
2: Sold goods in cash Tk.40,000
8: Purchase of Computer in cash Tk.42,000
12: Purchase from Y Ltd. on 15 days credit: 100 tins of Sun Soabeen @ Tk.200 per tin
50 tins of Flower brand Butter Oil @ Tk.300 per tin
18: Paid X Ltd. Tk.49,500 is full settlement through cheque
20: Return of 10 tins of Sun Soabeen being defect in packaging
25: Sold oil to Z Ltd.:
80 tins of Sun Soabeen @ Tk.225 per tin
45 tins of Flower Brand Butter Oil @ Tk.350 per tin
28: Paid Y Ltd. full amount @ 2% discount
30: Paid Salary Tk.20,000 and rent Taka 12,000

The enterprise had opening Cash and Bank Balance for the month of May at Tk.7,000 and Tk.80,000
receptively. Salaries unpaid for the month was, Tk.5,000 & Depreciation on furniture to be provided
@ 16% on W/D/V of Tk.22,000.
10.

The following business transactions were completed by Sonali Theatre Corporation during
June, 2000:
2000
June 1. Received and deposited in a bank account Tk.50,000 cash for capital stock
2. Purchased the Twin Theatre for Tk.100,000, allocated as follows: land, Tk.30,000;

buildings, Tk.37,500; equipment, Tk.32,500. Paid Tk.40,000 in cash and gave a

mortgage note for the remainder.
3. Paid premiums for property and casualty insurance policies Tk.3,000
4. Purchased supplies Tk.850, and equipment Tk.2,450, on account
6. Paid for June billboard and newspaper advertising Tk.1000
9. Cash received from admissions for the week, Tk.30,400
11. Paid miscellaneous expenses, Tk.2,200
15. Paid semi-monthly wages Tk.22,400
16. Cash received from admissions for the week Tk.33,000
18. Paid miscellaneous expenses Tk.1,750
21. Returned portion of supplies purchased on June 4 to the supplier, receiving full credit
for the cost Tk.410
22. Paid cash to creditors on account Tk.2,090
23. Cash received from admissions for the week Tk.24,150
24. Purchased supplies for cash, Tk.1,700
26. Paid for advertising leaflets for June Tk.1,500
29. Recorded invoice of Tk.45,000 for rental of film for June. Payments is due on July 10.
30. Paid electricity and water bills, Tk.6,000
30. Paid semimonthly wages Tk.22,450
30. Cash received from admissions for remainder of the month Tk.33,700.
Instructions:
(1) Record the transactions in a journal
(2) Post the journal to the ledger, extending the month-end balances to the appropriate
balance columns after all posting is completed
(3) Prepare a trial balance as of June 30.
(4)

11.

Determine the following:

(a) Amount of total revenue recorded in the ledger
(b) Amount of total expenses recorded in the ledger
(c) Amount of net income for June, assuming that additional unrecorded expenses
(including supplies used, insurance expired, etc. totaled 10,000).

From the following transactions of Alef Mia for the month of March, 2000, you are required to
show Journal Entries, Ledger accounts and a Tiral Balance:
2000
March 1: Started business with cash Tk.1,50,000 & Furniture Tk.60,000
2: Opened account in Excellent Bank with Tk.1,00,000
3: Cash Purchase Tk.40,000
8: Sales to Kamal Hossain on account Tk.60,000
12: Cash Sale Tk.20,000
18: Received Tk.59,000 from Kamal Hossain in full settlement and deposited the
amount in to the bank
25: Purchase on account Tk.30,000
28: Sale to Sun-Moon & Co. on account Tk.40,000
29: Salary paid through bank Tk.25,000
29: Withdrew from bank Tk.10,000 for office and Tk.5,000 for personal use
30: Paid office rent Tk.12,000